Prepare for the chancellor's words of ambivalence

Just under a week to go to next Wednesday's pre-budget statement - what should those in the business community be looking for?

Just under a week to go to next Wednesday's pre-budget statement - what should those in the business community be looking for?

Yes, the headline issue will be the measures taken (or not taken) to head off another fuel blockade. That gives added spice to an event that would inevitably be highly political: the coming budget next spring will presumably be the last before the election.

But when everyone is looking in one direction, beware the measures that are slipped by and hence escape notice. The business community will have to live with government policies when the fuel protests have become a distant memory - just as the haulage industry was until earlier this year living with a fuel escalator imposed by Norman Lamont. Once a policy is in place it tends to stick. We will not get the budget sweeteners next Tuesday; that is for the spring. But we will get certain measures, or at least hints of them, that could be just as significant as that fuel policy.

There are three things to look for on Tuesday: the forecast for the economy; the macro-economic measures including new information on public spending; and any detailed, micro-economic measures that the Chancellor cares to toss out. A word about each.

A forecast is just a forecast. But it is worth remembering that the Treasury has been rather better than most of the private sector forecasters over the last couple of years at calling the strength of the economy. There is one central issue: how quickly will the world economy (and hence our own) slow over the next couple of years?

There is a lot of evidence now that the euro-zone economy is slowing: forecasts a month ago were for more than 3 per cent growth in 2001, but they are now coming through at around 2.5 per cent. There is some evidence that the US is slowing too, though here the issue is whether growth next year will be in the 3.5-4 per cent region or whether it will be above 4 per cent. This year US growth looks like turning out at more than 5 per cent. And us? The key thing will be whether the big number for growth next year is 2.5-3 per cent, or something higher than 3 per cent, as it has been this year. My inclination would be to trust the Treasury's judgement in this matter, having (confession time) mistrusted it in the past. Somewhere out there in the future there is another global slow-down, maybe a global recession. But if the Treasury comes in with a strong figure for next year, I would be looking for the slow-down in 2002, not 2001.

This has obvious political implications but it also has practical ones for business. Another year of good growth increases the chances that sterling will stay strong and that any decline in interest rates will be gradual. There may well have to be a further rise in rates. So another year when strong home demand counteracts weakness in the euro-zone? Could well be.

The macro-measures - essentially the great wodge of additional public spending coupled with whatever tax sweeteners are hinted at - will add to the demand next year. So whatever natural demand there is in the economy will get an artificial stimulus. There will be a pre-election boom.

The macro-question is how big this boom will be. Are we talking 1988 or 1997? It is not quite the former in the sense that the pre-budget boom is under better control and the interaction between the housing market and overall demand is better understood. But the scale of the fiscal boost looks like being significantly bigger. So a smaller boom is being given a bigger kick.

In 1997, on the other hand, both the growth profile and the fiscal boost were more modest. True, Gordon Brown felt he had to tighten fiscal policy when he came in, but actually the numbers were coming more or less right without his help. A smaller boom was given a smaller kick.

Macro-economic policies have micro-economic implications. From a practical point of view this creates opportunities for the business sector. Individual companies will benefit from specific programmes in their areas of interest: most obviously investment in the roads or railways helps different parts of the construction and engineering industries. Easing planning controls on home-building helps not only domestic builders but all the companies that make the kit to put into homes: kitchens, carpets and the like.

There will not be much on taxation but there may be other elements that the business community needs to note. The pattern of announcements by this chancellor is to throw out lots of tiny detailed measures - fiddly little tax breaks or hand-outs - that run counter to the main thrust of the policy. So if taxation on companies is being increased there will be a host of measures that suggest that it is being cut. If there are incentives for specific investments there will be disincentives for general investment. If there are statements about wanting to help companies invest in new IT staff from abroad, there will be disincentives for existing IT staff already here.

One particular issue is just that: will there be any changes in taxation of self-employed, mostly IT, specialists, many of whom have moved abroad following a recasting of taxation provisions for the self-employed.

Looking ahead, expect either now or in the budget for there to be statements about relieving companies from excessive bureaucracy. Distrust these, because they will be coupled with measures that actually increase the bureaucratic burden.

In short, look for ambivalence. The Chancellor who presents himself as prudent will be the one who engineers the pre-election boom. The Chancellor who says he is cutting taxation will be the one who eventually (not this year) increases the total tax take as a percentage of GDP. The Chancellor who says he wants to foster enterprise will be the one who increases the burden on small and medium-sized companies. And so on.

This is not to say we have an incompetent or dishonest Chancellor. Not at all. There is always a tension between what chancellors say and what they do. We are getting reasonable competence and it is perhaps unrealistic to ask for more. It is just that people in the business community need to take the pre-budget statement with the proverbial pinch of salt.