December 18, 2006	Monday	Ziqa'ad 26, 1427

THE budget season has begun in Britain with Mr Gordon Brown, the Chancellor of the Exchequer, painting an upbeat picture of Britain's economic outlook and announcing at the same time, an extra £600m for military operations in Iraq, Afghanistan and elsewhere, and another £84m for intelligence gathering.

In his pre-budget report (PBR) which was Brown’s 10th and most probably his last one as he is slated to take over the mantle of Prime Minister from Tony Blair some time soon, the Chancellor claimed that Britain uniquely continued to combine recession-free growth with the longest period - a decade - of simultaneous employment and productivity growth. The PBR is a traditional mix of new measures and lengthy claims about past and present economic achievements, something like an amalgam of our Economic Survey and the National Economic Council (NEC) report.

However, the UK’s pre-budget report is delivered in the House of Commons by the Chancellor himself and is debated thoroughly by the MPs, while our Economic Survey and the NEC report are presented at crowded press conferences and are hardly debated inside the parliament except when references to these publications are made during the budget debate in the two houses.

"Despite contending with global imbalances, exchange rate uncertainties, stalled trade talks and high commodity prices, Britain's investment-led, export-led growth is forecast to continue in 2007," Mr. Brown said in his report.

He indeed had a good economic story to tell as it has shown a record 57 successive quarters of growth - with Britain’s nearest major rival – Germany - on under 20.

Britain has been growing more rapidly this year than Germany, France, Italy, and the average of the euro 12 countries and EU 25 countries.

The growth itself has reduced its dependence on consumer spending from four-fifth between 2000 and 2004 to a little over half since 2005.

Britain appears to have achieved what is not achievable in this globalising economy - a balanced domestic economy. It is truly a Goldilocks situation where growth paces up in tandem with low inflation, low unemployment and high investment.

Experts said this situation is supported by a very strong world economy, which the Treasury thinks will slow only slightly from its powerful recent run; the best for more than 30 years. Instead of 4.75 per cent or five per cent, the prediction is for a still-strong 4.5 per cent into the indefinite future.

The risks to the situation are as usual expected from oil prices which have gone up twice before coming down and could go up again, the uncertain American economy which can take the world economy down with it, an unexpected slow down in consumer spending and the compulsions of the central banks to raise rates faster and further than market expects.

However, the Treasury thinks China and India’s emergence means Britain could have entered a new era for the global economy. It thinks that businesses, sitting on healthy profits, could be on the brink of an investment boom well beyond the six per cent rise over the past year.

The following are some of the salient features of the pre-budget report:

• Economic growth this year will reach 2.75 per cent, against a forecast in March's budget of two per cent to 2.5 per cent.

• Economic growth during 2007 is expected to be 2.75 per cent to 3.25 per cent.

• Inflation is predicted to hit the government's target of two per cent by mid-2007 and remain on target during all of 2008.

• Investments and exports are forecast to rise by five per cent or more in 2006/07.

• Brown will meet his "golden rule" of keeping a balanced national budget during the course of an economic cycle, with a surplus of £8bn expected in the current cycle.

• Total government borrowing will fall from 2.3 per cent now to 1.3 per cent in 2011.

• Fuel duty was pushed up 1.25p a litre from midnight on December 6, but the above-inflation fuel duty escalator was not restored.

• The basic state pension will rise to 3.6 per cent in April and pension credit minimum guarantees rise £5 for single people and £7.65 for couples.

• Extra child benefit will be paid to women in the last stages of pregnancy.

• The government will keep tax-free Individual Savings Accounts, or ISAs, indefinitely rather than ending them in 2010.

• The film industry will receive new tax relief from January 1 next year.

• Air passenger duty on most flights will double to £10.

• Tax relief on biofuels will be extended.

• The vast majority of new carbon neutral homes will be exempt from stamp duty from next year.

• Britain and Norway will cooperate on carbon capture.

• Three million free books will be distributed to help boost childhood literacy.

• An average of £200 extra per pupil will be given in direct payments to schools.

• A target will be set for 90 per cent of adults to achieve the equivalent of five GCSE passes by 2020.

• Apprenticeships and basic skills programmes will be greatly expanded.

• Laws on copyright piracy will be tightened to protect intellectual property.

• The budget to monitor and police employers flouting the minimum wage will be increased by 50 per cent.

The Confederation of British Industry (CBI) which wields a highly influential clout in the country’s economic planning and management responded positively to the Chancellor's report.

Richard Lambert, CBI Director-General, said: "This Pre-Budget Report, except in one important aspect, recognises the need to address the challenges posed by globalisation. The new emphasis on training, skills, planning, transport and intellectual property are all welcome and could make a real difference to the UK's future competitiveness if delivered fully, quickly and intelligently.

"There were no surprises on the macro-economic front and the public finances are in reasonable shape.

"However, on the critical issue of tax competitiveness, there was silence. Business did not expect a reduction in taxes today, but hoped for some recognition of the growing disparity between the UK rate of corporation taxation and those elsewhere. This, together with the complexity and compliance burden, risks business investment shifting overseas.

A CBI research report published last month found that seven in ten business leaders believe the UK is a poorer international business location than in 2001. The UK corporation tax rate has slipped from 10th best in the OECD in 2000 to 18th in 2005.

Commenting on individual elements of Gordon Brown's speech, Richard Lambert said: "As globalisation takes hold, we must raise our game on skills to compete internationally. Further investment in the education system is welcome. How the money is spent is just as important as how much. “

"There is an urgent need for concerted worldwide action to tackle climate change, as the watershed Stern report makes clear. But Air Passenger Duty is a blunt tool which does not really reflect the environmental impacts of air travel. The extension of carbon trading to aviation is the sensible way forward. It delivers a clear cap on emissions and lets the market decide how to reduce them in the most economically efficient way - rather than the Chancellor setting arbitrary tax rates.”