Martin Spring
london calling
The latest British budget offers further evidence that in Gordon Brown the country not only has its best finance minister in living memory but also an exceptionally shrewd politician.
In the past Labour governments went on spending sprees after getting into power, got the economy into trouble and then had to administer doses of nasty medicine, which ensured that the party wasn’t elected for a second term.
This time Brown did it the other way around. Muttering constantly about “prudence” and no more cycles of “boom and bust”, he kept a tight lid on spending for the first three years of Labour’s power, then began to ease up, and has now splashed out on a miscellany of voter-pleasing goodies just ahead of the general election.
Labour’s combination of excellent economic management, subtlety in raising taxes and avoidance of aggressive socialist policies assures it of re-election with a comfortable majority.
Of course, Labour had some good fortune. It received an excellent heritage from the Conservatives, rode a global boom with low inflation and faces weak opposition. The Tories don’t present a convincing image as an alternative government. They lack heavyweights, most of whom are discredited or disagree with their leadership’s policies, especially on Europe.
Labour’s popularity is nevertheless surprising when you consider how a multiplicity of “stealth taxes” and a near-freeze on public-sector spending has deprived ordinary Britons of much of the benefits of economic good times.
Real growth of disposable incomes what people have left to spend after allowing for taxes and inflation rose at an average rate of 2,9% a year under Maggie Thatcher’s governments and 2,5% when John Major was in power, but only 1,6% under the “Iron Chancellor”, as Brown likes to be called.
Brown’s tax concessions for politically targeted groups, such as working mothers and poor retirees, are wrapped in nightmare packaging of form-filling that should ensure that relatively few of those qualified to benefit actually do so. (This may be a deliberate hidden intention to save money, or merely an unintended consequence of blind faith in management of social engineering by bureaucrats).
Largely because of a long period of under-investment in infrastructure, which continued for most of Labour’s time in power, Britons suffer from congested roads, Third-World public transport, an inadequate and expensive health service and a shameful educational system.
Brown is now tackling the financial aspects of those problems with some resolution. For example, he plans to increase public investment from 7-billion last year to 18-billion a year by 2004.
Few deny the need for such investment, but it does raise the question of whether Britain can afford it without raising taxes significantly, and visibly, which would torpedo Brown’s assumed ambition of a third term in power and succeeding Tony Blair as prime minister.
That would be disturbing if, as I suspect, Brown is much more of an old-fashioned socialist than Blair.
Brown argues that Britain not only has to, but can also afford to, invest heavily to upgrade its infrastructure and public services.
After years of austerity, the national debt has been brought down from 44%of gross domestic product to less than 32%. Government finances have been transformed, moving from a fiscal deficit of almost eight per cent to a surplus of nearly two per cent one of the best figures in the 15-nation European Union.
To fund the spending on infrastructure, Brown plans to borrow on the capital market, but says public debt will not rise above 40% of gross domestic product.
The biggest danger of this is that assumptions about growth of the economy of the world, and therefore of the United Kingdom, turn out to be too optimistic. This would mean disappointing tax revenues and higher social spending (for unemployment benefits, for example), plunging the fiscus into deficit.
The opposite risk is that growth within the UK gets too much stimulus from the current round of tax cuts and escalating public investment. With unemployment already very low, where are the extra labour resources going to come from?
Labour shortage would push up pay levels and prices, threatening to bring back significant inflation. If that happens the independent Bank of England would undoubtedly raise interest rates, causing pain all round.
If interest rates stay relatively high in real terms, or even rebound, that will strengthen sterling, which arguably is already too strong and harming export industries.
These are real risks. But I suspect that the problems of the United States economy, in particular, and for the world economy in general are going to require easier fiscal and monetary policies in all major nations to prevent something really serious happening and to bring about recovery.
If I’m right about that, the timing of Brown’s stimulus could prove to be excellent and Brown, who has been stigmatised as “a typical Lowland Scot focused on thrift and plunder”, could achieve his ambition of being the next resident of 10 Downing Street.
@We are the real winners
Alec Hogg
boardroom talk
It might seem churlish criticising a marketing effort which has attracted 100 000 customers in a month and a half. But there’s little doubt that Absa missed a few tricks with its introduction of free Internet access. By now Absa’s free service should have blown away the competitors: charged-for alternatives offered by M-Web and World Online. Instead the rest of us are being subjected to barely disguised suggestions that the free service is sub-standard, or in the words of M-Web chief Antonie Roux “you get what you pay for”. M-Web’s cause has been helped, too, by well-publicised criticism of the viability of the free initiative from Nedcor and, to a lesser degree, First National. Absa’s lack of response to such criticism serves only to reinforce the perception of a cheap and nasty offering.
Absa’s brains trust would probably argue that the proof will be in the experience of the users, and the bankers have no concern about the quality of the service which is being provided. My digging tends to reinforce this view. Hiding this under a bushel, though, provides unnecessary ammunition for those like Roux who have an obvious vested interest in keeping their R95-a-month model alive.
Where the bankers have missed a big trick is by not explaining that the country’s most admired technology group, Dimension Data, provides much of the nuts and bolts of the free service. The DiData involvement alone would be enough to remove any doubt about the quality of the offering, with the spin-off of also ending Roux’s sniping for good.
The Internet Solution, the country’s Internet access pioneer and a subsidiary of DiData, is responsible for providing the bandwidth. Stablemate Merchants operates the new service’s help desk. Both businesses are acknowledged leaders in their sectors and respected for delivering the kind of premium service clients are prepared to pay a little extra for.
DiData was introduced to the project by multinational ICL which has a three-year contract from the project’s initiator, London Stock Exchange-listed Affinity Internet Holdings. A measure of the potential is that the Affinity/ICL partnership has captured more than half of the United Kingdom market through similar free Internet access offerings.
If Affinity’s UK model is anything to work off, expect rugby supporters of the Cats, Stormers and Sharks to be offered free Internet access soon. Among the most successful of Affinity’s UK partnerships has been that with Premier League soccer teams. The key ingredient being a brand which has an intensely loyal user base.
For Affinity, this is a long-term plan. After having to beat off many competitors in the UK, the company is paranoid that locals may catch on to its strategy, ending a dream run. So even with partners, the Affinity executives have kept their business model vague. But those who have studied the operation’s success in the UK reckon it’s a play on the deregulation of our telecommunications market.
Should Affinity’s plan succeed, by the time new players enter the local telecommunications market, the company will have accumulated a huge base of users. That would put it into a powerful position to negotiate kickbacks from the new fixed-line entrants. No coincidence, perhaps, that DiData is among those who have expressed more than a passing interest in bidding to become one of three new competitors Telkom expects to face by 2005.
If all goes according to its plan, Affinity stands to reap the huge rewards you’d expect for the dominant player in the Internet access market. Clearly, though, there remains some risk. More obvious winners are ICL and DiData, both of which will be paid for providing the “picks and shovels” of the free Internet access boom.
The other big winners are the South African public who, in spite of what Messrs Roux and company may suggest, really don’t have to pay for quality Internet access.