Brown's low growth, low wage budget

IN THIS week's pre-Budget statement, Chancellor Gordon Brown was forced to admit that economic growth would be far lower than he predicted in his April Budget. He said that the economy would grow by 3% - 3.5% in 2005, he has now revised that figure to 1.75%. That would be the lowest growth for 12 years.

Steve Score

The Labour government has been fortunate in that since they have been in power, Britain has seen a relative boom in the economy. It has been sustained by high levels of consumer spending based on credit (i.e. record levels of personal debt) and the house price boom.

However, there are now signs that these are about to run out of steam. High oil prices are contributing to this growing economic crisis. A downturn in the world economy would cause devastation to the British economy.

This boom is very lopsided, going alongside a massive collapse in manufacturing - a 30% fall in manufacturing's share of the economy since Labour came to power in 1997. High levels of profit have been the result of low pay, cutting the share going to the working class.

Lower levels of growth have a long-term effect on the government's plans for public spending because they reduce the amount of tax the government harvests at the same time as increasing the amount it has to spend in welfare payments. There is an estimated £10 billion - £11 billion "black hole" in the government's finances. This inevitably means they will attempt to further cut public spending and also look for ways to increase tax.

Brown built his reputation by claiming he is the one responsible for Britain's relatively stable economy. This is, of course, a factor making him the almost inevitable heir to Blair's Labour party leadership. But he could take over at a period when the economy is beginning to go into a downswing and when public spending cuts are really beginning to bite.

He has already had to stretch the time period for his own rules on government borrowing over the economic cycle. What growth there has been in public spending in the last few years does not replace that lost in cuts made by the Tories and by himself in the first three years of the Labour government.

Much of the money has gone into the pockets of private companies as privatisation of public services has accelerated - a policy that he has made clear he will continue. Public sector workers get little - Brown told health workers that their pay will only rise in line with his inflation target of 2%, at a time of spiralling prices for fuel etc.

Big business policies

Brown expects to get some money from a windfall tax on oil companies. These companies have yet again made huge profits out of the high oil prices. This is only a temporary measure, and as Britain's North Sea oil begins to run out will not sustain the Treasury in the long run.

He also announced measures to increase the supply of housing including promoting "shared equity housing" schemes with banks and building societies. But this does not solve the massive housing crisis that exists.

Many working-class people cannot afford to buy their own homes and local councils, because of government policies, no longer build houses for rent with 1.5 million people on the waiting list. And although there is some extra money for councils, it is not enough. So, high council tax bills and cuts in services will continue.

Brown told the Financial Times: "The Britain I want is one of enterprise and aspiration". Translated, that means he wants to continue to carry out policies in favour of big business. Against a background of threatening economic problems in capitalism, whether as chancellor or potentially prime minister, he will try to make working-class people pay for them.