Leading article: A Budget for the short term, paid on the never-never

Mr Darling revives the politics of envy to postpone public sector reform
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The Independent Online

The Chancellor's Budget speech is a set piece of the political year as keenly awaited as the State of the Nation address in the United States. The Commons is full, the mood anticipatory, verging on raucous – and yesterday was no exception. But with the dire forecasts for the public finances and the depth of the global downturn, there was an added frisson of trepidation. How would the Chancellor respond to an economic climate at its most inclement since the Second World War?

The answer was disappointing, but should not have been unexpected. Radical, exciting, visionary, this Budget was not. Workmanlike is the word that comes to mind; workmanlike, but strangely old-fashioned and finely attuned to the concerns of voters who might be tempted to stay at home at the next general election.

Its headline, one of the few surprises in an otherwise mundane landscape, was the decision to bring forward the tax rise for the highest earners and increase the new top rate to the highly symbolic figure of 50 per cent. On the face of it, such a move – breaking a New Labour promise and revising upwards a tax rise already announced in the Pre-Budget Report – could offer proof that the public finances may be in even more trouble than they appear. But the politics were as transparent as the economics.

There was a sense in which Mr Darling was presiding at the obsequies for New Labour, and Peter, now Lord, Mandelson's "intensely relaxed" attitude to people becoming "filthy rich". As an attempt to raise revenue for the Treasury, the 50 per cent rate is likely to yield less than forecast, if anything at all. It looks much more like a nod to public anger over high salaries and banking failures – a regrettable and depressing sign that the politics of envy are back. It was clearly, too, a trap for the Conservatives, which they deftly sidestepped with their non-committal response. In essence, it was a pre-election gambit, albeit the most eye-catching, among many.

There was the long-discussed "scrappage" scheme for the car industry (and hesitant car-buyers), part of which will be funded by the car-makers. There was a concession for grandparents looking after grandchildren, but only those carers of working age. There was a similarly small consolation prize for pensioners with modest savings, and an even smaller one for tax-paying savers in a higher ISA allowance which will cost the Treasury almost nothing so long as interest rates stay low. And the VAT reduction and stamp duty holiday are to remain at least until the end of the year – in other words, they are being given more time to have the desired effect.

Small business was another beneficiary, with lesser sweeteners handed out for housing, employment and green causes: anything that might foster, or at least not deter, those elusive green shoots. Given the anxious public mood, even those voters not directly wooed by the Chancellor yesterday probably felt cheered by his decision to leave basic tax rates and allowances alone. Besides the hardy perennials such as alcohol and tobacco taxes, average earners emerged, in the very short term, relatively unscathed.

But there is another side to the burial of New Labour and it was exploited to such lethal effect by David Cameron in his response. Three terms of a government that started out committed to prudence and sound economic stewardship are ending in a catastrophic deficit that bespeaks the very opposite. Mr Darling's projections for a return to growth may turn out to be less utopian than they seem today, but the levels of debt that are forecast to persist until 2017, even by his – presumably best-case scenario – threaten to impoverish into the next generation a country that should be rich. Without a coherent and rigorous plan to cut borrowing, it is hard to see how investor confidence will return. The Government's sensitivity to IMF figures illustrates its concern on this score.

Mr Darling had a difficult task – not to dash timid hopes for recovery, to gird Labour for an election, and to rebuild trust in the Government's management of the public finances. But failure in the third could thwart the other two, and the best Mr Darling had to offer here were further – unspecified – "efficiency" savings.

The Government's reluctance to prune the public sector at a time when claims on its resources are increasing is understandable, but the Budget cannot be the last word. Mr Darling has promised new financial regulation. He should couple this with a similarly far-reaching review of what central government does and how it does it. If he cannot bring himself to grasp this nettle, the Conservative leader should do it for him. Mr Cameron could seize the initiative by making root-and-branch reform of the public sector central to his election manifesto.