The British chancellor, Mr Gordon Brown, has paved the way for an election with a relatively generous budget which targeted tax reductions at families and the low-paid and extra spending to health and education. While the Conservative party leader, Mr William Hague, quickly dismissed the package as a "cynical election budget", Mr Brown did not, in fact, throw caution to the wind. He provided some benefit for most voters, but was still able to forecast a budget surplus for the 2001/2002 fiscal year of £23 billion sterling. He was able to do this because steady growth has boosted tax revenues, giving him considerable room for manoeuvre.
The date of the general election remains uncertain; May 3rd remains the favoured date, shortly after the Budget tax concessions become effective in mid-April. Mr Brown tried to press all the right buttons in his package, offering a modest reduction to all taxpayers by widening the tax band for the low 10 per cent income tax rate. In what he put forward as a "families first" package he significantly boosted maternity leave and benefits and increased tax relief for families with children. On the spending side, he provided £1 billion extra for both health and education, while also introducing a range of new measures to encourage enterprise. The overall message was that the Labour government would keep Britain on a steady growth path, escaping the traditional boom to bust cycle.
With the election now just a couple of months away, the economic outlook for the Labour government is good. The economy should grow by 2.5 to 3 per cent this year, unemployment is low and inflation is subdued. Britain can reasonably hope to avoid any major difficulties from the downturn in the US, although the Bank of England may choose soon to reduce interest rates again to give growth a modest boost due to the poorer international environment. The issue of whether - and when - Britain will enter the euro zone will no doubt be an election issue. While the Conservatives will try to focus on this issue, Labour will stick to its mantra that the decision to hold a referendum will only be made when the various tests set down for entry are met.
For Ireland, the outlook for steady growth in the British economy is welcome. With growth starting to ease in the US, our exporters will hope to target Britain and the Continental European economies instead. An early decision to bring sterling into the euro zone would also be good news for our economy and would do much to encourage additional trade and investment across the Border. It remains to be seen, however, whether the likely timing of such a move will become clear shortly after the election.
Mr Blair - odds on to return to Number 10 Downing Street - has indicated that the issue could be dealt with in the first two years of the new parliament, but even if the vote was then for entry, it would still be some years before sterling entered the euro zone. So while exporters can probably count on a benign outlook for the British market, they will still have to cope with the uncertainties of currency swings for some years to come.