This recognises that in desperation Brown is making a political gamble to add to his reckless financial ones. He is throwing all pretence of national unity out of the window and going for naked confiscatory socialism. He might succeed politically but it would be the death knell for Britain.
Christina
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TELEGRAPH 5.12.09
Gordon Brown's U-turn on tax is a sad pantomime
Attacking the wealth of 'the few' could be profoundly damaging to Britain, argues Jeremy Warner.
When Mervyn King, Governor of the Bank of England, appeared before the Treasury Select Committee last week, it was his disclosure of more than £60 billion of covert lending to Royal Bank of Scotland and HBOS that grabbed all the headlines.
In fact, he said something much more interesting during the course of his grilling, which was that any credible plan of fiscal consolidation would have to aim at largely eliminating the structural deficit within the lifetime of a single parliament.
The markets would have a problem, he implied, with anything less. The credit-rating agencies, which have issued veiled warnings of a downgrade unless more is done to address Britain's ballooning public debt burden, seem to agree.
Current Treasury projections envisage that Britain won't return to balanced budgets for at least eight years. As for already announced proposals to steer us in that direction, these would only halve the deficit in the four years up to 2013/14. Subsequent elimination of the deficit is based entirely on wishful thinking – that politicians will go the extra mile after the initial plan of action has been completed.
Next week's pre-Budget report will do little to correct this lackadaisical approach. Indeed, as a guide to long-term fiscal and economic planning, it will be largely irrelevant, for even if Labour is re-elected in six months' time, whatever is announced on Wednesday will have to be torn up and remade.
If the new government doesn't do so voluntarily, it will be done forcibly instead, as markets act to raise Britain's cost of borrowing. A sterling and accompanying fiscal crisis would fast bring matters to a head.
The only reason the Treasury is being given the benefit of the doubt for now is that everyone assumes today's plans are just a pre-election pantomime, with reality to be reimposed soon after the curtain falls next May. Alistair Darling, the Chancellor, will insist that the economy is still too damaged to risk a more severe or immediate fiscal squeeze, but this is to believe Britain still has any choice in the matter.
All major economies have experienced a severe deterioration in public finances as a result of the financial and economic crisis, and all of them will end up with debts in five years' time of around 100 per cent of GDP. What makes Britain's position different is that a substantial "structural deficit" will remain even after the economy has recovered. If left unaddressed, this would put overall debt on a continued upward trajectory.
All serious thought on what to do about it has been put on hold until after the election. But what the pre-Budget report lacks in fiscal significance will be more than made up for by its political message. The self-proclaimed party of "the many" will be doing its level best to demonstrate it means business with a broadside of measures that attack the wealth of "the few".
Fiscally futile this may be – penalty taxes on the rich tend quite quickly to hit the law of diminishing returns. Even so, the polls indicate widespread public support for it, such is the anger generated by the catastrophe of the banking crisis.
The political opportunism is nevertheless breathtaking. You wouldn't believe it to hear the ministerial rhetoric, but the failures in policy and supervision which led to the banking crisis were not a Thatcherite invention: they took place almost entirely under Labour.
The overexpansion of finance that occurred after 1997 was a global phenomenon that single governments would have been powerless to resist, even if they had felt so minded. But not only did Mr Blair and Mr Brown embrace the windfall-tax revenues that were generated, they actively encouraged finance through policy that favoured the City over industry and prioritised borrowing and consumption over savings and investment.
There was scarcely a more tax-friendly place on earth to be rich than London under Gordon Brown, particularly if you were a foreigner. Mr Brown arguably did more for the financiers of the City than any chancellor in history. [Just weeks before the crash Brown said “I have been able year by year to record how The City of London has risen by your efforts, ingenuity and creativity to become a new world leader . . . an era that history will record as the beginning of a new golden age for the City of London. . . . Britain needs more of the vigour, ingenuity and aspiration that you already demonstrate that is the hallmark of your success”. -cs]
Now, though, the scales have apparently fallen from his eyes – it is back to the politics of high taxation, big government, and state intervention. We are all entitled to change our minds, I suppose, but as ideological U-turns go, they don't come much more extreme than this one. The banking crisis is to be used as an excuse to roll back great swathes of previously accepted Thatcherite deregulation and reform. It is hard to keep count of the mistakes in policy and tone now being made in the populist search for votes, be it on taxation, inward investment, banking, regulation, the budget deficit or Europe.
Maybe it will get Brown re-elected, who knows? But it's sad to watch, and, according to many business leaders I talk to, is profoundly damaging Britain's long-term interests.
The brain drain began a while ago. But for the fact that many are waiting to see what the election brings, it would already be a raging flood. Of course, there are many who won't leave, but enough will to make a difference.
Politically, economically and socially, it seems as if we are being whizzed in a time machine back to the Seventies.
2. PBR will be 'less ambitious' than Budget
Alistair Darling will risk the fury of the ratings agencies and the Bank of England Governor with a pre-Budget report which by some measures will be less ambitious than those in the Budget.
By Edmund Conway
The Chancellor will not attempt to cut his borrowing target for four years from now, despite widespread calls to bring the deficit down faster. The Treasury will also project that it will borrow "slightly" more this year than the £175bn it forecast in April, meaning Britain's total net debt may be higher in four years' time than the 76pc of GDP projection contained in the Budget.
The news will spark more fears about the stability of the British economy, amid fears of a credit ratings downgrade. However, Treasury insiders said that the scale of the economic pressures likely in the coming years meant that to slash the deficit any further would cause lasting damage to the economy.
However, the Treasury will dwell more on the fact that it will cut its estimate for the cost of its bank bail-outs from £50bn to £10bn.
When the projections are published next Wednesday in the pre-Budget report, they are likely to cause jitters. Britain is next year due to face the biggest budget deficit in the Western world, according to the OECD, which warned that unless action was taken to reduce borrowing, the UK could face the risk of a "debt spiral" as the costs of servicing the deficit mount. If markets baulk at the scale of the deficit, this would push up interest rates on government debt, which in turn would raise the overall shortfall still further.
Michael Saunders, chief European economist at Citigroup, said the decision not to increase the scale or speed of cuts would "absolutely increase" the chances of a fiscal crisis in the next year. [To allow this debt-spiral would be lunatic. It would be an inescapable trap that would not just do short-tem damagebut would permanently wreck Britain -cs]
He said: "Since the Budget we've had countless warnings that the Budget did not go anything like far enough - from the IMF, the OECD, the European Commission, the ratings agencies, among others. The Treasury implied again and again over the past six years that it would put this right in the PBR, so I think there will be disgust in the market with this news.
"There is a high risk of a hung parliament - and the dangerous market consequences that go with that."
The Treasury forecast in the Budget earlier this year that it would borrow some 12.4pc of GDP this year (£175bn), but would reduce this to 5.5pc of GDP (£97bn) by 2013/14. Insiders say that the borrowing overrun will be slightly above the target this year, while economic growth is likely to be more than a percentage point worse than the Treasury's previous forecast, coming in close to 4.75pc. These two factors will mean that borrowing is close to 12.6pc of GDP this year.
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