Outlook: Golden rule - or a three-card trick?

AS IS often the case with the Chancellor, there was as much spin as there was substance in Gordon Brown's speech yesterday to the annual European Investment Bank Forum. Mr Brown uses the words prudent, cautious, stable and strict so often these days when referring to the public finances that he could pass for an actuary just as easily as a Chancellor of the Exchequer.

Mr Brown promised solemnly that he would stick to his "golden rule" over the economic cycle - borrowing only to finance investment - while still finding an extra pounds 40bn for health and education. All this at a time when his own growth forecasts for the economy have been slashed in half, and without raising taxes to boot.

Mr Brown says we will just have to be patient and wait for his pre-Budget statement in 12 days' time to see how he will pull off this three-card trick. But already it is clear that some of it will be done with smoke and mirrors and the rest by raiding the reserves.

A portion of that extra pounds 40bn for schools and hospitals will be dressed up as investment in bricks and mortar when, in reality, it will be a mix of current and capital spending.

The Paymaster General Geoffrey Robinson's decision to target pounds 7bn worth of capital projects under the Private Finance Initiative, is another indication of the way the Government is thinking. Labour came into power eschewing the kind of PFI targets that the Conservatives set. Now it has discovered they are a handy way of trimming departmental budgets when the purse strings tighten.

The back-of-a-fag-packet calculations carried out by the Liberal Democrats suggest that Mr Brown should be able to stick to his golden rule - but only just, and only after drawing about pounds 22bn from the reserves.

That calculation assumes, of course, that there will be no recession, merely a sharp slowdown. Unless Mr Brown had not noticed, others are less sanguine. Yesterday it was the chairman of Daimler-Benz, no less, musing on the prospect of a global recession in the car industry just as Ford cut back production at Dagenham again.

Mr Brown's pledges on public spending are the sort of trap that Labour governments cannot seem to help setting themselves. He may just avoid falling into it this time, but the margin for error is now perilously thin.

Halifax

THE BLACKBURN boys, aged seven and 10, sound a great deal more fun to be around than the Chartered Institute of Bankers. Now their dad, Mike, has decided to quit his job as chief executive of Halifax to spend more time with all three of them.

Who can blame any father for wanting to share more of the parental duties after clinging on for 16 years to the very top of the greasy pole? As for the Institute, somebody has got to be its president.

But neither of these new roles sounds a very convincing explanation for why Mike Blackburn has suddenly decided to jump ship from Halifax in January. Admittedly, he will stay on the board for a further 11 months, but only in the titular role of vice-chairman, passing on pearls of wisdom to his young successor, the 42-year old James Crosby.

The board says Mike always planned to retire next December once he got to 58. If so, it is news to the rest of us. The board also says his departure does not presage a change in corporate strategy. Well, we will see about that.

The raison d'etre for the Halifax flotation in June last year - to give the business access to the capital markets to raise more finance - always looked threadbare and so it has proved.

Since then the company has actually accumulated a rather embarrassing surplus of capital. So much so that even after forking out pounds 750m for Birmingham Midshires and handing back pounds 500m to shareholders, Halifax is still awash with pounds 3bn of capital looking for a rewarding home.

The Midshires deal looked like a rather desperate attempt to spend some of that money while also halting a rather alarming loss of mortgage business to the remaining mutuals.

But of itself, the acquisition will do little to increase Halifax's scale and nothing to improve its economies since it has given an undertaking not to close any branches for three years.

Halifax has begun to claw back its share of the mortgage market with some highly competitive fixed-rate deals.

But the appointment of the new chief executive could not be a clearer indication that Halifax sees its future in the savings, pensions and life assurance market. It was Mr Crosby who masterminded the acquisition of Clerical Medical and has, for the past four years run Halifax Life.

There is no shortage of opportunities, starting with NPI. The challenge for Mr Crosby, however, will be to spend all that money at his disposal wisely before it burns a hole in his pocket.

Energy taxes

THE IDEA of a new tax that does not raise revenue looks suspiciously like an oxymoron to most people. But that is how the Chancellor is likely to bill his new carbon tax on business. The measure will be tax neutral, we are promised, because the amount of revenue raised will be offset by reductions in employers' National Insurance contributions and tax reliefs on investments which reduce harmful emissions.

Experience shows, however, that once new taxes are introduced they are not easily rescinded. In contrast, it is much easier and much more tempting to nibble away at the value of tax credits when the public finances threaten to run short.

Still, the Government has to do something if Britain is to meet its target set at the Kyoto environmental summit of a 20 per cent cut in greenhouse gas emissions by the year 2010. A 10 per cent tax on all energy used by business, raising say pounds 2bn, is an effective if blunt way of encouraging more energy efficiency.

The alternative is a system of emission permits allowing businesses that find it difficult to save energy to trade their targets with businesses that find it easier.

But emissions trading would be time-consuming to implement and unappealing to smaller companies who would be daunted by the bureaucracy. In addition, it would fail to meet the principle of making the polluter pay unless the permits were auctioned.

Lord Marshall, who was appointed by the Chancellor in March this year to come up with a workable idea, has laboured long and hard to find a solution that will deliver the desired cut in emissions without hampering the international competitiveness of British business.

Drawing on the expertise of the Institute of Public Policy Research, one of Labour's favourite think tanks, he looks to have come down in favour of a tax.

To make the measure more appealing, the Government may dangle the carrot of allowing tax credits to be traded, reducing the bill for some companies. But it would be dangerous to bet on the tax being revenue neutral for ever.