The budget presented by the British chancellor of the exchequer, Mr Gordon Brown, aims at some precise targets. It puts extra funds into the priority areas of health and education, while aiming not to goad the Bank of England into further increasing interest rates by restricting the level of income tax reductions.
The labour government clearly believes that there is now more political capital from increasing spending on areas such as the health service than from major tax cuts. The state of the British National Health Service has drawn major criticism and the chancellor announced £2 billion extra in health spending this year and said that overall spending in this area would increase by 6.1 per cent ahead of the expected rate of inflation over the next four years. Education, meanwhile, will get an extra £1 billion.
Tax reductions have been held to £1.2 billion this year, a little less than City forecasters had anticipated. Labour has been criticised for quietly increasing the tax burden over its years in government - a charge on which Conservative leader, Mr William Hague, concentrated in his reply in the House of Commons yesterday. By restricting tax reductions, Mr Brown will hope that the Bank of England will have little reason to raise interest rates much further. British interest rates may thus be at, or at least near, the peak of the current cycle.
The chancellor was able to boast that economic growth will revive from 2 per cent last year to 3 per cent this year and that the exchequer finances would remain in strong surplus over the next couple of years. This stable outlook is good news for the Irish economy. Britain remains a key trading partner for the Republic and, of course, businesses in the North rely on the British market to an even greater extent.
The health and education sectors in the North should also benefit from increased spending levels; it would be a shame if local politicians were not to have a major input on where the money will go, which will be the case if the institutions established under the Belfast Agreement remain suspended.
The Budget and the prospect that British interest rates could be close to a peak may lead to some easing in the value of sterling in the months ahead, which would help to moderate inflation in the Republic and would be of considerable assistance to exporters in the North. The key British economic issue for the Republic, of course, is Britain's attitude towards membership of the euro. Mr Brown yesterday gave no further indication of policy in this area.
As the chancellor with the healthiest public finances since the late 1980s, Mr Brown is clearly mindful not to repeat the disastrous tax cuts introduced by Nigel Lawson, which ultimately contributed to a nasty recession, in a classic "boom to bust" cycle. Fortunately the British economy now looks in much sounder shape and Mr Brown will hope that his prudence - and his targeted spending plan - will pay off, as the long run in begins to the next election.