Britannia Radio

Today the chickens come home to roost.  All over I cannot find a  
serious commentator who has a good word to say for the budget.  The  
single most common fault found is that the figures are from dreamland  
and have no basis in fact at all.  If that’s the case the budget can  
only make things worse.  And worse could mean total collapse.

I  give prominence to Vince Cable’s contribution for although I do  
not fully support his remedies his analysis is in tune with the  
general consensus.

All in all this appears to me like Darling attempting to issue a  
national suicide note.

This must be regarded as the first instalment of my postings on the  
budget today but I will be back after lunch with a wider ‘traw
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TELEGRAPH                       23.4.09
1.(Leader) Britain deserves better than the shabby cynicism of this  
Budget
The tax rises are almost wholly political in motivation

The crisis that confronts this country is on a scale almost  
unprecedented outside wartime. Only those who lived through the Great  
Depression have faced grimmer economic times. At such moments in  
national life, we look to government to rise above petty politics and  
to speak and act for the whole nation. Yesterday, we looked to this  
Labour Government for such leadership, but in vain. In a mean- 
spirited Budget that lacked honesty, fairness and vision, Gordon  
Brown and Alistair Darling were perfectly happy to play cheap  
partisan politics with the nation's future. They will not be forgiven  
for it.

This was the moment Labour forfeited the respect of the country. By  
retreating to the failed policies of the 1970s, falling back on its  
core support and indulging in crude tribalism, Labour has finally  
broken with middle Britain, whose support has helped it to three  
consecutive terms in power. It will not happen a fourth time. If,  
yesterday, we were hoping for some wartime spirit, what we got  
instead was a declaration of class war.

Three weeks ago the Irish finance minister Brian Lenihan delivered an  
emergency budget that treated the voters like grown-ups. He made no  
attempt to gloss over the scale of sacrifice needed from everyone,  
politicians included.  [Here we got Brown proposing to dish out MORE  
cash tyo MPs for - er - doing what they are already paid tomdo -cs]   
What a contrast to the Chancellor's lifeless recitation of a string  
of footling, inconsequential measures, and his stubborn refusal to  
admit any responsibility whatsoever for the cataclysm that has  
befallen us. When Mr Darling revealed the scale of indebtedness into  
which the Government is plunging us, he displayed the emotional  
intensity of the speaking clock. But the figures are truly shocking –  
the Government will borrow, this year and next, £348 billion which,  
as David Cameron pointed out, not only doubles the national debt but  
exceeds the total borrowing of all previous governments put together,  
over the past 300 years. It will not end there.

Over four years the Government says borrowing will top £600 billion –  
many analysts expect it to be far higher. We will be saddled with  
this monstrous burden for decades.

If we were not to get any sign of contrition from Mr Darling for the  
Government's economic mismanagement – for only part of this train  
wreck can be blamed on the banking crash – we at least had a right to  
expect some inkling of how the Government intends to pay it off. This  
is where yesterday's statement became utterly unconvincing.

First, Mr Darling defied credulity by asserting that an economy that  
will contract by 3.5 per cent this year (three times as big a  
shrinkage as he predicted just five months ago) will actually grow by  
1.25 per cent next year. Such unrealistic guesswork is unforgivable.

Next, he announced not cuts in public spending, but a lower rate of  
spending increase (after the next election, of course), which will  
save £10 billion over two years. If the situation were not so grave,  
such pitiful nibbling at Whitehall's bloated budget would be  
laughable. If Mr Darling were serious about getting better value for  
the taxpayer, he would have done something about the public sector's  
unaffordable pensions, but on this he was silent.

And then we had what he and Mr Brown clearly regarded as the pièce de  
résistance, the tax rises. These were no ordinary tax rises of the  
sort Mr Brown routinely, and stealthily, imposed when chancellor.  
These were high-profile, soak-the-rich tax rises that were almost  
wholly political in motivation, defying the Tories to oppose them and  
so be depicted as the toffs' party.

Pitiful, is it not? The new top rate of 50p for those earning more  
than £150,000 will take effect next April, a cynical breach of  
Labour's 2005 manifesto commitment. The electorate can draw its own  
conclusions about how much trust it should place in the next  
manifesto. At the same time, those earning more than £100,000 will  
lose all personal allowances. Taken together, the measures will raise  
£7 billion.

Mr Brown has wanted a 50 per cent top rate of tax since before Labour  
was elected in 1997, but his hand was stayed by Tony Blair, who knew  
the importance of fair taxes to the aspirational middle classes. As  
Prime Minister, Mr Brown has finally got his way. No matter that when  
Nigel Lawson cut the top rate from 60 to 40 per cent in 1988, tax  
revenues increased sharply. No matter that in pushing the rate back  
up, enterprise will be stifled and wealth generators driven away.  
Such practical considerations have been eclipsed by sheer political  
opportunism.

The shabbiness of yesterday's Budget does not end there. In cutting  
pension tax reliefs for the better off, Mr Darling risks turning all  
pension planning into a lottery because reliefs lower down the income  
scale will now be seen as fair game.

There was a clear sense yesterday of authority – if not yet power –  
shifting across the Commons from a worn-out and discredited Labour  
administration towards the Tories. Mr Cameron was excoriating in his  
contemptuous assault on this "government of the living dead". His  
party must now rise to the challenge posed by Brown/Darling cynicism.
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2. Government has opted for symbolism instead of solutions to problems
Yesterday's Budget brought home with brutal clarity the central  
dilemma in economic policy: rapidly rising unemployment in a deep  
recession calls for government intervention and investment.

    By Vince Cable

But the scale of the Government's budget deficit means that there are  
severe constraints on what can be done.

I had hoped that at the very least we should have some honest  
numbers. The Government has owned up to very large budget deficit and  
borrowing figures, much of which is structural, but then cheerfully  
assumes that the deficits will have halved in four years. This  
stabilisation of the budget is not achieved by budget discipline and  
tough choices in public spending, but by assuming a spectacular  
growth recovery starting next year.  [Darling must be on halucinatory  
drugs -cs]

We can all play games with forecasting assumptions but the Government  
has to explain why its own assumptions are so much more optimistic  
than independent analysis. The importance of this dishonest,  
statistical sleight of hand is that it manages to evade all the  
important questions about public spending priorities which have to be  
faced. Indeed, the Government also assumes that it can make £9bn a  
year additional "efficiency savings" without sacrificing a single  
programme. Why, we might ask, was the large scale inefficiency  
regarded as acceptable until now?

The most pressing issue is rising unemployment, which will probably  
reach 3m to 3.5m by the year-end though the Government inexplicably  
assumes 2.44m (claimant count). The main new proposal is the car  
scrappage scheme under which owners of old cars (over 10 years old)  
will be offered £2,000 to buy a new car – which is very likely to be  
imported, as 85pc of behicles currently are.

A better use of public money would be to take the remaining £8.5bn  
currently in train for the temporary VAT cut and redirect it to  
public investment in affordable housing, public transport and large- 
scale home insulation, creating jobs in an environmentally friendly  
manner, leaving taxpayers with an asset. The Government actually  
proposes (in the small print) a deep cut in public investment in 2011  
when they assume that unemployment is no longer a problem. [If they  
assume that they are even more deranged than I thought! -cs]

The elephant in the room which is at the heart of the financial  
crisis is the broken banking system. The Government makes extremely  
conservative estimates of the cost of the bail-outs – £50bn as  
against an IMF estimate of £130bn. But, more immediately, there is  
nothing to suggest that the banks rescued by the taxpayer are now  
being run in the public interest. Large numbers of solvent, well run,  
profitable businesses with good order books are still being refused  
credit on reasonable terms, resulting in closures and lay offs,  
aggravating the slump.

The Government's arms length approach is perpetuating the problem.  
Moreover, little has been learnt from the past; Attempts are now  
being made to relaunch mortgage-backed securities which hide risk and  
contributed to the collapse of the banking system, this time with  
taxpayer underwriting.

The Government has tried to win populist support by raising the top  
rate to 50pc on incomes over £150,000. My party and I agree on the  
need for a fairer tax system but it is simply tokenistic to impose a  
higher top rate without plugging loopholes. The Government has  
addressed one of these loopholes (upper rate pensions tax relief on  
very high earners) but not the other (18pc CGT rates which are giving  
a massive incentive to switch income into stock or other capital  
assets). The Lib Dem approach is to be much more far-reaching and to  
use the revenue not as a stealth tax, but to lift thresholds on low  
earners – we would lift 4m people out of tax by raising the threshold  
to £10,000 and cutting the annual tax bill for most people by £700.

By contrast, the Budget actually raises tax on middle and low earners  
by £1,000 a head. This is as a consequence of the delayed increase in  
Natuional Insurance Contributions as well as alcohol and petrol duty.  
Low earners, pensioners in particular, already face relatively high  
inflation because of the costs of food and domestic heating and the  
Government has missed an opportunity to correct for this burden and  
create a fairer tax system. It has instead opted for symbolism.

There are a few nice touches in the Budget – such as recognition of  
the role of grandparents as carers in the benefit and pension system.  
As a grandfather I liked that. There is also some recognition of the  
way in which pension credit acts to confiscate the savings of low  
income pensioners. But the Government still, incredibly, assumes that  
pensioners earn 10pc return on their savings. [- - and cut benefits  
based on that 10% ! -cs]

But the big story is a cynical refusal to face up to the implications  
of an unsustainable budget deficit and the choices which will have to  
be faced in public spending.
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Vince Cable is the Liberal Democrat Treasury spokesman
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3. If the Budget was a numbers game, the Chancellor definitely lost
As expected, the budget was really a holding operation. The startling  
thing is that, gargantuan though the forecast borrowing numbers are,  
they are still likely to prove too low.

    By Roger Bootle

In particular, it was striking that the Treasury is forecasting a  
recovery in the economy next year of 1.25pc, and a supercharged  
recovery, running at 3.5pc per annum, thereafter. I suspect that the  
out-turn will be far worse than that, with a further decline in GDP  
next year and only a moderate recovery when it comes.

The Treasury forecasts that next year consumers' expenditure will  
rise by 0.25pc, despite what will probably be high and rising  
unemployment and average earnings growth at minimal levels.  
Meanwhile, the savings rate will still be at very low levels and I  
suspect that people will want to rebuild their financial strength  
before starting to increase their spending again.

So I am pencilling in peak borrowing of about £230bn, or 16pc of GDP,  
next year, compared with £173bn forecast by the Chancellor. Of  
course, Mr Darling could be right. Indeed, the borrowing numbers  
could turn out to be lower than he is forecasting. But my estimates  
do not represent some barely imaginable extreme. The out-turn could  
easily be still worse, particularly since these numbers do not  
include allowance for any major losses from the government's  
involvement in the banking sector.

Has the budget done anything to make the economic recovery come  
sooner? The answer has to be no. The government is caught between the  
devil and the deep blue sea. Its instincts are Keynesian, that is to  
say, it would like to do more to boost aggregate demand by cutting  
taxes and/or increasing spending. But in the event, the poor state of  
the public finances has restricted it to a further stimulus of only  
0.5pc of GDP, a pathetic figure in view of the seriousness of the  
recession.

But neither has the Chancellor done a great deal in the direction of  
restoring orthodox finances by reducing the borrowing requirement. He  
has been stymied by both the concern not to make the recession worse  
by drawing demand out of the economy now, and by his reluctance, for  
political reasons, to announce either large tax rises or big cuts in  
spending.

The Treasury has cut the planned real growth of current public  
spending in later years to 0.7pc per annum, reduced from 1.1pc  
previously. But these are pie in the sky numbers. If you believe the  
pollsters, it won't be a Labour Chancellor who has to push through  
these spending "cuts".

Even after these supposedly draconic reductions, the debt to GDP  
ratio doesn't stop rising for four years and peaks only just below  
80pc. The Treasury coyly omits to tell us when the ratio of debt to  
GDP will be back below the 40pc marker laid down in Gordon Brown's  
fiscal rules. (Remember them?) On my numbers, I reckon that it could  
be thirty or forty years hence.

In these circumstances, the squeeze on public spending doesn't go  
anywhere near far enough. If it were up to me, I would base the  
fiscal plans on a complete freeze on public spending in nominal  
terms, implying cuts in real terms, to take effect over a multiyear  
period.

Given that there is so little that the government can currently do to  
boost the economy directly, the real contribution that it can make  
now is by boosting confidence. Did the budget help? No. One problem  
is that the Treasury numbers simply have no credibility whatsoever.  
As recently as last November, the Chancellor told us that the  
borrowing figure for this year would be £118bn. In last year's budget  
he told us that it would be £43bn. He now says that it will be  
£175bn. Why on earth should we believe him?

Mr Darling still managed to retain something of his predecessor's  
tendency to see the UK as leading the world in a variety of fields,  
including green technology. He talked of developing offshore wind. If  
you ask me there seemed to be an already excessive supply of onshore  
wind. We seem more likely to be leaders in red technology, with the  
Debt Management Office issuing umpteen squillion of gilts in the  
morning and then the Bank of England buying them in for rather more  
in the afternoon. Talk of recycling.

The Chancellor talked warmly of grandparents caring for their  
grandchildren. In the circumstances this was appropriate, for it  
seems that the grandchildren will still have to live with the  
consequences of what had to be endured by their grandparents.
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Roger Bootle is managing director of Capital Economics and economic  
adviser to Deloitte.