Monday, 24 November 2008

Alistair Darling's pre-budget report

Alistair Darling, the Chancellor of the Exchequer, has just come before Parliament and announced a package of emergency measures to try to fix the UK's broken economy. Of course, he didn't actually use the word "emergency", what he actually did was open his mouth and spray borrowed money all over the place.

The big give-away includes:-

VAT reduced from 17.5% to 15% effective Monday 1st December, and lasting until the end of next year. (Cost to government: £12.5bn)

Small and medium-sized enterprises to have exemption on property tax up to a ratable value of £15,000. (This reverses to some extent his decision in April, which I blogged about back then.)

The aforementioned SMEs will henceforth be allowed more time to pay their tax bills (as long as they want basically) and will be able to offset loses going back three years, instead of the current one. Their rate of corporation tax will also not be going up as planned. They will be able to borrow up to £1 million directly from the government, and AD has arranged for the European Investment Bank to provide an additional £4bn in loans via the usual retail banks.

AD is also chucking £3bn at the economy in a sort of "New Deal". This cash will be spent on road improvements, social housing, schools, and energy efficiency measures, eg grants to insulate your home.

"Families" will also be receiving some direct largess. Child benefit is rising by a couple of pounds per child per week. Child tax credits are going up, pensioner credit is going up and the state pension is rising as well (up to £198pw for a couple.) And the icing on the cake: every pensioner is getting a £60 one-off Christmas bonus; £120 for couples.

AD is also trying to stop people in debt losing their homes. Henceforth the government will pay unemployed people's mortgages up to £200,000, previously £100,000 and at an interest rate of up to 6%. AD has persuaded lenders to hold off any repo action for mortgage-holders in arrears until 3 months have passed; and THE BIG ONE, the government is also looking at underwriting new CDOs, you know, those toxic bonds which started the whole credit crunch in the first place; no concrete scheme in place for this yet - let's hope it never happens.

All this is to be financed by (i) borrowing now, and (ii) much higher taxes later.

Have a look at the planned borrowing...

Year Borrow
---- ------
2008 £78 bn
2009 £118 bn
2010 £105 bn
2011 £87 bn
2012 £54 bn

That's heavy stuff.

In April this year he claimed he would need to borrow only £43bn. He seems to have got through £35bn in the last couple of months bailing out banks and the like.

In his response the Shadow Chancellor, George Osborne, challenged him to confirm that he was planning to increase the national debt to one trillion pounds! From AD, answer came there none.

In fact GO's stock is rising. He rightly accused the chancellor of planning to borrow his way out of debt. He neatly pointed out that Labour backbenchers were applauding now the cancellation of measures they applauded when introduced earlier in the year.

From 2011 onwards, ie after the next general election, AD plans some severe tax increases. There will be 0.5% on all National Insurance contributions, employer and employee; a new top rate of tax of 45% for people earning £150,000pa and cuts in allowances for people on £100,000pa. AD foreshadowed increases in petrol, alcohol and tobacco duties.

I think the chancellor's whole attitude can be summarised as: spend, spend, spend like there's no tomorrow, because actually there isn't. Not for him and his New Labour gang at any rate. In their one short decade of power they have trashed the economy so badly it will take a hundred years to fix. It's not conceivable that they be elected for a fourth term in power, and surely they must be praying they are kicked out so they don't have to suffer the consequences of their own incompetence.

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