Here’s another from Roger Bootle politely contemptuous of Darling’s antics.
I follow it with a report of Philip Hammond on Newsnight tonight. How he kept his temper with Kirsty Warke beats me when she failed to listen to any of his answers!
Christina
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TELEGRAPH 10.12.09
Pre-Budget report: What planet does Alistair Darling live on with talk of bingo and boilers?
What was it that Dr Johnson said about a dog standing on its hind legs? It is not surprising that it is not done well; the surprise is that it is done at all. So I thought, listening to poor Alistair Darling's measured but lugubrious tones, trying to sound sober, hopeful and determined, all at the same time, while studiously doing nothing at all.
By Roger Bootle
I found him most disconcerting when he was banging on about this country's strong position in the key industries of the future. He sounded like a low-alcohol version of the previous Chancellor in his pomp – a sort of Gordon-lite.
On the key budget judgment, though, I thought he got it about right. I support the policy of deferring pain until the economy is in a stronger position to bear it. [Bootle is out of step with most commentators here -cs] But that is not the same as saying and doing nothing.
As I suspected, in macro terms the PBR was a non-event. At least the Chancellor avoided the temptation to bribe the electorate with its own money, but he also missed the chance to announce measures which would bring the deficit down faster in later years.
There was a plethora of small measures but they were largely offsetting. The revenue from increasing National Insurance and the impact of lower future inflation in reducing government expenditure was squandered on a variety of spending increases. Incredibly, given the strains on both the economy and the public finances, benefit rates and pensions are set to rise. And the UK's overseas aid is set to continue growing stoutly. No problem there then! Amazingly, while the country faces as dire an economic emergency as it has ever faced in its history, the Chancellor found time and money to talk about bingo and boilers. What planet does he live on?
The plan for the deficit amounts to a single word: hope. Sustained economic growth will bring in increased tax revenue. And the growth of spending will be brought down to zero, but without the need for overall cuts. But what if the economic growth does not emerge? Next year's forecast of 1-1.5pc is fairly modest and should be achieved. But for the following two years the Chancellor is forecasting growth of 3.5pc. It would be wonderful if we could secure such growth. But in the current state of the world economy, and working with a weakened banking system and overloaded domestic balance sheets, I think this is unlikely. I suspect that the economy will struggle to achieve growth of 2pc.
As to the spending part of the equation, we are none the wiser as to how the planned sharp reduction in the pace of growth of spending is going to be achieved. That will have to await the next Comprehensive Spending Review, conveniently due out after the election. What is the Government's Plan B? They don't have one. Come to think of it, they don't really have a Plan A.
This PBR was a mixture of putting off until tomorrow the big things which everyone knows need to be announced, if not done, today, and a variety of small things which should not be done at all but which, if they are to have any political impact, have to be done today.
The levy on bankers' bonuses will be popular, but it is really absurd for this government to clothe itself in the garb of righteous indignation at the antics of the banks. It was this government, and Bill Clinton's in the US, which signed up to the idea that financial markets are perfectly fine when effectively left alone to their own devices. All along, most people suspected that we had been sold a pup. Now we are all left to pick up the pieces.
This PBR left me nursing two thoughts – one a hope and the other a forecast. The hope is that the world economy continues to recover strongly and that we manage to grab at a least our fair share of the benefit in increased exports. If not, then heaven help us.
The forecast is that, even with this assistance, Mervyn King will have his work cut out to ensure that the economy grows fast enough to deliver the needed growth in tax revenues. When, after the election, the spending axe falls and taxes go up, it will surely be as plain as a pikestaff that our interest rates will have to stay at rock bottom for a very long time.
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Roger Bootle is managing director of Capital Economics and economic adviser to Deloitte
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NEWSNIGHT, BBC 2 9.12.09
Pre-budget report "utterly cynical", says Hammond
Philip Hammond MP, Shadow Chief Secretary to the Treasury
Phillip Hammond, Shadow Chief Secretary to the Treasury, called the government's Pre-Budget Report "utterly cynical" and "a tremendous missed opportunity".
Mr Hammond criticised the Pre-Budget Report's failure to spell out clear spending cuts and it's electioneering promise to increase disability benefits.
"They could have made a credible path back to fiscal responsibility. This is a completely cynical manoeuvre."
Asked whether the Conservatives would commit to their plan to raise the inheritance tax threshold, Mr Hammond responded it that it would no longer be a key policy.
"Our priority will be to avoid Labour's National Insurance increase."
He said the government had "failed to set a future trajectory for departmental savings" but admitted the Conservatives were not in a position to do so themselves.
This though, was only because Labour had had the "entire resources of the civil service" at their hands. [- -and because contrary tyo precedent the books are not open to the opposition to inspect -cs]
Two further comments, the fist from Andrew Lilico of Policy Exchange and the second from Matthew Sinclair of the Taxpayers’ Alliance.
One thing I would particularly draw everyone’s attention to is the predicted inflation of a very high level - up to 10% is predicted - in 2012-13. This is the classic way that banana republics clear their debts - cause so much inflation that the value of the debt is wiped out in a year or two. Savers are wiped out too and ultimately nobody will lend us money unless the debt is in some other stable currency.
I warned of inflation a year ago but my sources wouldn’t put a date on it. Now here from another source it is, in 3 years time.
Christina
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CENTRE RIGHT (Conservative Home) 9.12.09
The Pre-Budget Report
Andrew Lilico
Alistair Darling’s pre-Budget report (PBR) today was a disappointment, though perhaps not an unexpected one. In particular, it contained no plan to cut spending further or earlier. Indeed, spending is rising this year by £5bn, and current spending is rising faster (0.8%) than projected in the Budget (0.7%). The Government is now relying upon inflation to do the work of spending control.
There is no plan to cut the deficit faster. This is projected to reach 5.5% of GDP in 2013/14 - exactly the same as in the Budget. The plan is for the deficit to fall to 4.4% of GDP by 2014/15. In today's terms, that would be £62bn - a larger deficit than the UK had every experienced up to 2008/9, even after an entire Parliament of fiscal consolidation. The PBR boasts (at B.30) that "Cyclically-adjusted borrowing is lower than at Budget across the medium-term forecast."
But this is entirely because of a redefinition of the cycle, not because of any reduction in the deficit!
In the meantime, the UK is projected to be borrowing around £175bn in 2009/10 and 2010/11. At 12.5 % of GDP, this is far in excess of any plausible level at which deficits could be expected to stimulate the economy in the short-term, assisting it through recession. Instead, a deficit on this scale acts as an anchor on the economy, raising interest rates and creating concerns amongst households that their taxes will rise. The structural deficit (that bit of the deficit that won’t go away as the economy recovers) is estimated at 9% of GDP, some £125bn (down slightly on the 9.8% figure estimated at the Budget, but only because of a slightly changed assessment of the cycle).
Taxes are indeed projected to reach 37.3% of GDP in 2011/12, a figure not seen in the UK since 1985/6. Indeed, taxes not been above 37% of GDP since 1986/7. Recent Treasury research suggests that there is some 1.7m of suppressed unemployment, with workers keeping their jobs only because they were willing to accept reductions in hours, pay freezes, or pay cuts. (Our own research puts the number at above 1.9m.) Yet the PBR increases employer and employee NICs.
Imposing such a tax on employment at this time could well tip matters over the edge for a significant number of these people, accelerating what will, anyway, be a significant rise in unemployment over the next year.
At 4.75% contraction, 2009 is the worst year for the UK economy since comparable records began in 1948. Indeed, it is worse than the likely estimate for 1931 (4.6% contraction). As regards the forwards-looking estimates, to get growth of 1-1.5% for 2010, the economy would need quarterly expansions of some 0.4-0.5 throughout 2010. I believe there will be two quarters of contraction, and GDP will be much closer to flat on the year, but 0.4-0.5% growth per quarter is certainly not out of the question. To get 3-3.5% growth in 2011, the quarterly expansion would have to be around 0.9-1.0%. I believe that’s comfortably doable, albeit at the cost of high inflation.
Some commentators seem to be suggesting that if there is growth of 1.25% in 2010, then Darling’s 2009 Budget growth forecasts will have been vindicated. That is a somewhat confused idea. The 2009 Budget forecast growth in 2009 at minus 3.5% and plus 1.25% in 2010. Since the actual contraction in 2009 was 4.75%, the economy starts about 1.25% smaller at the beginning of 2010. So if it grows only the 1.25% the 2009 Budget projected, it will be about 1.25% smaller in 2010 than the Budget thought it would be. That means lower wages, less employment, lower tax receipts.
There is a special freeze on the higher rate threshold for 2012/13. I think we can safely say that Darling does not anticipate deflation in that year. I think it’s pretty clear that the Treasury expects high inflation that year (as do I), so that a freeze that year will be a significant money-spinner. The PBR forecasts RPI inflation of 3.5%. I think they must believe it will be higher (I expect 10%).
Overall, with rating agency and gilt-purchaser warnings about the UK’s credit status ringing all around, it is clear now that the UK's ability to borrow and its credit rating now rely upon bond market expectations that the real decisions will be taken after the General Election. We’d better hope that whoever wins will be up to taking them.
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Andrew Lilico is Policy Exchange's Chief Economist
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Rhetoric and reality in Alistair Darling's speech
Posted by Matthew Sinclair
At the TaxPayers' Alliance website, we've been following some of the nasties in the Budget. There are a few which are particularly nasty, and run completely contrary to the objectives Alistair Darling set out in his speech. Let's take a few quotes from that speech, and then look at the actions which will undermine his worthy rhetoric:
"Unemployment can never be a price worth paying."
Despite that noble sentiment, Alistair Darling has increased the tax on employment - National Insurance - twice. With nearly a fifth of young people, aged 18-24, unemployed that is an incredible policy choice. We dealt with this issue in our paper on the parties' responses to the fiscal crisis and I've gone over our view again today in a new blog.
And, suppose you need workers who travel a lot, salesmen for example, then you'll be hit by other stealthy tax rises. Jennifer Dunn shows on our blog that the increases in company car tax are going to mean higher rates for almost every car - around a 19% increase on a diesel Mondeo.
"Mr Speaker, I have been clear that support during the downturn must go hand-in-hand with steps to rebuild our fiscal strength once recovery is firmly established."
But, as Ruth Lea points out in an entry on our blog: "The Chancellor has shirked his duty to the country. Again." There was no serious information for the markets and the taxpaying public about how our deficits and debt are going to be brought down. Ben Farrugia and Mike Denham provide more detail. All we've had are empty promises and superficial changes.
"But this growth will come from more varied sources and not depend as much on the financial sector which will, of course, remain an important part of our economy."
The Chancellor says he wants to diversify our economy away from over reliance on the financial services sector but, as I pointed out in another entry on our blog, he has put in place a 75% increase in the Climate Change Levy for energy-intensive firms (who have Climate Change Agreements). That will mean more exported emissions, doing nothing for the climate, and more factory closures like the one at Corus last week.
I think all these sectors will pay more under this plan, directly or indirectly:
"I can also tell the House that, from the Budget, I will cut bingo duty from 22 to 20 per cent."
At least he did actually cut the tax on bingo, though they'll probably take that money straight back with the levy on domestic phone lines.
All we can hope is that the next Government will take the need for spending cuts more seriously, and we won't see an increase in VAT as well as the National Insurance hike, following the rise back from 15%. Alistair Darling has done nothing today to avoid the need for such a ruinous tax hike on the poor.
Today's front pages:-
TIMES - "The axeman dithereth - - - but the taxman cometh"
TELEGRAPH - "Middle classes hit hard"
INDEPENDENT = "Bingo., Boilers and Bonuses - - Pain Postyponed"
GUARDIAN - "Darling soaks the rich - and the rest of us too"
MAIL - "The Buck Passer's Budget"
EXPRESS - "Labour's war on workers"
SUN - "Darling just screwed more people than Tiger Woods"
Christina
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