National budgets continue to have an important function despite the greater integration of European economies which sets broader strategic priorities even for those states such as Britain that remain outside the euro system. Mr Gordon Brown's budget yesterday was a skilful exercise in shifting taxation priorities which also reveals a good deal about the Labour government's longer-term economic strategy. He set out clearly his objectives to reward work, enterprise and innovation, strengthen the family and relieve pressure on the environment by changing levels of taxation. His success in achieving these objectives can be judged only in the longer term, but there was an undoubted air of confidence about his speech. He surprised the opposition by announcing a cut in the basic rate of taxation which will make its own contribution to family income, as will the decisions to create a children's tax credit and not to tax child benefit. Politically, the speech competed with the Tories' commitment to family and enterprise, to the evident discomfiture of Mr William Hague and his colleagues.
Nonetheless, Mr Hague's charge of tax stealth seems to be borne out by evidence that the overall tax burden has been increasing. Mr Brown's skill in highlighting family affairs may be reduced when it becomes clearer to taxpayers that reduction of the basic rate is offset by other rate changes - for his own good Mr Brown needs to resist the temptation to be too clever by half.
On employment and enterprise, he has firmly signalled a commitment to innovation, research and development by adroit shifts and incentives, backed up by a programme to bring the benefits of information technology to many homes, schools and firms. Britain has much ground to make up in those areas compared to many of its European competitors, but these measures point its policies in the right direction. Irish observers should take due note of Mr Brown's strategy on company taxation. He has brought it down to the lowest level in any of the large industrialised states. This is a clear signal to the Germans in particular, where the Social Democrat/Green government is currently facing the wrath of business interests. Ireland's more radical commitment to standardise corporation tax by the end of 2002 at the rate of 12.5 per cent will put this State increasingly in alliance with Britain on this question. Mr Brown has tried hard to avoid penalising the corporate sector unduly with his decisions to shift energy taxation in such a way as to reduce environmental pollution. It is a praiseworthy effort which other EU governments should follow.
Mr Brown foresees only modest growth in the British economy this year, picking up solidly in the next two years - which would coincide nicely with the election expected in spring or early summer 2001. He referred to the economy staying within the Maastricht Treaty criteria, which would qualify Britain to join the euro. It is expected that a referendum on joining would be held soon after the election, and that this issue will inevitably loom large in the campaign.
Mr Brown has certainly positioned the British economy towards convergence with the other major EU countries over this period, in a strategy that is bound to attract increasing international attention for that reason.