Sean O'Grady: Shadow of the IMF looms over Darling

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The Independent Online

To recall a political campaign song rarely heard these days, can things only get better?

According to the Chancellor's figures, the answer would appear to be yes – but only because things have sunk so very, very low. According to one think-tank, 2009 will be the worst year for the British economy since 1921. Yet now growth, as the Chancellor argues, will indeed return by the new year, and the recession can be declared over, if only technically.

The public finances should get better too, though again from an astonishingly poor starting point. This year's £178bn deficit – the largest in peace-time – should mark the peak. The "black hole" in the public finances seems smaller than it was, too. This "structural" deficit – the persistent part that has nothing to do with the recession and everything to do with Mr Brown's overspending in the go-go years – is probably closer to £75bn than the £90bn previously thought. Bad, by any standards, but not quite as dire as might be. The stock markets seem surprisingly perky; unemployment has not risen as fast or as far as feared.

Yet things could all too easily get much worse. Nothing of economic importance that the Chancellor said yesterday was a surprise – but it was still a bitter disappointment. For entirely understandable political motives, Mr Darling ducked his last best chance to avert a catastrophic downgrading of the UK's international credit rating next year, a collapse in sterling, soaring interest rates, and a rescue package from the IMF. Far fetched?

Our precarious public finances, feeble recovery and still-broken banks make this country a prime candidate to follow Dubai, Portugal and Greece into the financial poor house. Had Mr Darling been braver yesterday – a rise in VAT to 20 per cent, abolishing all middle class tax perks and admitting that even frontline services must suffer cuts – we could be a little more sure that we will escape financial Armageddon. As things stand, the next Budget Mr Darling delivers may be written for him by an IMF team in residence at the Treasury. In which case we can expect rough treatment and indiscriminate cuts.

As far as the economy is concerned, the verdict on Mr Darling's package is simple: too little, too late.