Cautious Welcome for Chancellors Spending Boost
By Robert Harris
CHANCELLOR, Gordon Browns, 43bn boost to public spending over the next three years, announced in this weeks spending review, marks a massive loosening of Treasury purse strings.
Such a move could be inflationary, putting pressure on the Bank of England to raise interest rates to take the heat out of the economy, strengthening the Pound in the process.
But, given the way the money has been apportioned, and the recent cooling of the economy, NFU chief economist Si(tm)n Roberts hopes such action can be avoided.
The review largely fulfilled the wishes of the new NFU/industry alliance, which released a report last week highlighting the risks of government economic policy to agriculture and manufacturers.
Spending was kept to about 2.5% above inflation through to 2003/04 in line with projected economic growth. Much of the extra money has been earmarked as capital investment, with funds doubling from 7bn this year to 19bn in 2004, a largely non-inflationary move.
“The combination of current spending and capital investment means that total spending growth is actually about 3% a year in real terms,” says Mr Roberts.
If there is no sudden economic downturn, that should be within safe limits, he adds.
But there is a big jump in planned government spending for this year, he notes.
“It is up by 6.7%. But the Bank of England was briefed on all these figures before it set interest rates this month, so we can only hope that it views them as appropriate.”
Education, health, regional development and defence were all winners, and agriculture also gained, though, as expected, there was no direct aid or agrimonetary compensation for farmers.
MAFF received a 6% rise through to 2004 in real terms, though much of this is likely to go on matching modulation payments and ministry restructuring.
But spending on transport will almost double to 9.1bn in that time.
“As an industry, we are almost completely dependent on transport. Anything that helps it has to be good news,” he says.