Britannia Radio

Budget: Darling on fantasy island, claim his detractors

The Mole: the Conservatives and the City have zeroed in on the Chancellor’s invented growth forecast, says our Westminster insider

FIRST POSTED APRIL 23, 2009

The morning after the Budget night before and the Chancellor is battling the inevitable hangover. He had already admitted the headlines were "never going to be good, I was reconciled to that". Well, he hasn't been disappointed.

The City and the Opposition have zeroed in on his forecasts for growth and are, in effect, accusing him of making them up. Meanwhile New Labour stalwarts like Lord Mandelson and former minister John Reid are desperately trying to argue that the tax rises for the rich do not signal the end of New Labour and a return to the old-style socialism that kept losing elections.

And everyone has noticed that, while he doesn't want to make too much of it, Darling is squeezing public spending - down from 1.1% of GDP to just 0.7%. It only continues to increase slightly next year, election year.

Ken Clarke believes the Treasury have simply made up the growth figuresWhat has caused the greatest howls of disbelief from the City and Opposition is the Chancellor's claim that growth will hit 1.25 per cent next year before shooting up to 3.5 per cent the following couple of years. They want to know where on earth he got those figures from because they aren't backed by many independent forecasters.

Shadow Business Secretary Ken Clarke led the assault on this for the Tories. Clarke is the man the Opposition claim that, as their last Chancellor, actually created the conditions for the good economic weather Labour experienced for the following decade - so they reckon he knows what he is talking about.

And he has claimed that Darling got his Treasury number crunchers to simply make up the sort of growth figures the country needed to see in order to make it look like he can balance the books in about five years' time.

The problem for the Government is that many of the people Darling needs to convince simply aren't swallowing it. And if City financiers thinks the Chancellor is living on fantasy island, they simply will not respond the way he wants them to: confidence will not grow, economic activity will, as a result, fail to pick up and the whole package will start to unravel.

To many people the 50 per cent tax rate looks like a return to the Old Labour eraThen there is the political problem. While few voters are likely to get upset about a 50 per cent tax rate on high earners - and as I reported yesterday afternoon, it looks like a neat political trap for the Tories - New Labourites are eager to insist this does not mean the party has gone by to 1970s style tax and spend.

Lord Mandelson declared the party was "not going to turn the clock back" to some Old Labour era. But to many people, that is just what it looks like and that is a card the Tories may well be able to play to some advantage in the general election campaign.

David Cameron has been quick not to fall into the 50 per cent trap by saying he will oppose it, sticking to the line that repeal will "not be a priority" for a Tory government. Whether that will be enough to stop his own right wing revolting remains to be seen. Already Tim Montgomerie of the influential ConservativeHome.com and London mayor Boris Johnson have said the party should oppose the policy. So there may still be Tory trouble ahead.

What all this amounts to is confirmation that this Budget is exactly what it looked like on the day it was delivered - the battle plan for the next election.