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Brown makes his budget cases

Gordon Brown is a very good Chancellor. Whether or not you agree with what he does, you cannot doubt that he possesses the qualities that someone in his position needs. He is in full command of his brief, is prepared to be radical and is an incredibly effective political operator.

One of Brown&#39s innovations has been to effectively abolish Budget purdah. This old and venerable tradition began in the days of Gladstone. It required that no details of the Budget should be made public until the Chancellor got to his feet, to prevent unwarranted financial speculation. Indeed, one former Labour Chancellor, Hugh Dalton, had to resign when he inadvertently let slip a Budget detail to a journalist in passing conversation.

But this year, there has been pretty much full and open disclosure of what the key Budget themes will be – the NHS and small businesses.

Last week, the Chancellor gave a full and detailed analysis of what he considers to be the options for the future of the NHS. He dismissed the idea of GPs charging for visits, as that would disincentivise people from seeking help, and also rejected any expansion of private insurance schemes, pointing out that the least well-off would not be able to afford such schemes, as well as noting that the cost would be a burden on employers. He then turned his attention to social insurance – a form of public insurance scheme – which he dismissed because of anomalies that would be created and the additional social costs for employers.

His conclusion, unsurprisingly, was that the NHS would continue to be funded out of general taxation. In reality, Brown&#39s arguments do not address the central question – how a one-size-fits-all NHS can serve the diverse needs of the whole of the UK population.

Further, his argument is somewhat contradictory. If we need a health service free for all at the point of use, why does this not extend to long-term care in England and Wales?

Brown&#39s position means that private health provision, and the sort of private health plans that are currently available, will be set in aspic. There will be little expansion in the marketplace and very little innovation in financial products to help meet the costs associated with ill health. By contrast, the LTC market is expanding with a range of products designed to meet diverse needs.

There remains one rabbit hopping around inside his hat. Brown may pull it out. He has hinted that his Budget will include a proposal to set out NHS funding for “the long term”.

The Treasury&#39s opposition to hypothecated taxes is relatively recent – only in the last half century or so – but there is no reason in principle not to have hypothecated taxes for central services. It may be that Brown announces that a specific percentage of income tax will go directly to the NHS. Such a reform will be hugely radical and will focus public attention on the costs of health. It may allow him to raise taxes without it being seen as a general increase in income tax.

After Brown has dealt with the NHS, he will set out his plans to help small businesses. Brown has been helpful to small businesses so far, particularly in reducing rates of capital gains tax and corporation tax. He is bound to do more in this regard.

Surprisingly, Brown announced details of the Government&#39s response to the Competition Commission inquiry into banking services for small businesses and this gives a good insight into his thinking. Just as he has intervened in the design of stakeholder pensions and introduced Cat standards for Isas, so he has now told banks how they must design their small business accounts. They must offer interest linked to the base rate or do away with money transmission charges. They must also make their charges transparent and make it easier for small businesses to switch bank accounts.

There is a danger in Brown&#39s approach. The big four banks control the market and he has effectively told them how to create a consumer-friendly product. The risk is that new entrants HBOS and Abbey National will find it more difficult to carve out a section of the market. But Cat standards and improved pensions have not had the same effect and a lot of competition will depend on good marketing and effective customer service.

I do not expect there to be a great deal of news in the Budget on retail financial services. Sandler and Pickering are still on course to report in the summer and it is highly unlikely that the Chancellor will make any big announcement although he may herald a review of Isas, which was promised when they were first created.

April 17 is the date in the diary. Brown is not such a moderniser that he does not genuflect occasionally to tradition. So he will keep some surprises up his sleeve but, between now and then, most of us can write most of our Budget briefing for our clients.

Edward Vaizey is director of public affairs at Consolidated Communications


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