| Abstract: | In announcing significant increases in public spending in the Autumn Statement, the government has recognised that the scope for further interest rate reductions ahead of the election is virtually nil. It has therefore sought to boost demand, and its own popularity, by a fiscal relaxation. It so doing, it is prepared to risk a PSBR. (excluding privatization) of £27bn, exactly in line with the estimates which we made in June of Labour Party policy. In terms of macroeconomic policy, therefore, the gap between the two parties is virtually closed, while that between Mr. Major's government and that of Mrs. Thatcher is evident. Front this starting point, we argue that honouring Mr. Laniont's pledge on income tax could be at the expense of removing tax relief on mortgage interest payments and that a Labour government which still cherishes higher public spending may be forced into continuing the privatization programme. Under either Party there is a strong political case for tax increases, or for rescinding some of the planned increase in spending, early in the life of the next Parliament in order to bring the economic and political cycles back into synchronisation from which they were disturbed by Mr. Lawson's tax-cutting Budget of 1988. |
