Michael Brown: The most irresponsible budget I have ever heard

The Government has painted the opposition as the 'do-nothing' party

Tuesday 25 November 2008 01:00

Prepare for a general election next year – if not in the spring, certainly by the autumn. Alistair Darling's temporary tax giveaways (much of which – especially the VAT reductions – will be clawed back in 13 months time) has all the hallmarks of addressing the political rather than the economic cycle.

Every cabinet minister will be under orders never to mention the "election" word. But it is inconceivable that Gordon Brown will want to risk losing the short-term advantages given by this pre-Budget report, before unemployment rises relentlessly to three million by the end of 2009.

This emergency pre-Budget report was the most irresponsible and profligate I have ever heard. But if Labour can persuade voters to focus only on the short-term, it amounts to one of the most politically generous attempts to bribe them with their own cash. It puts into the shade all previous pre-election giveaways. In terms of economics it is a huge gamble with the public finances. But in terms of pure politics it may yet turn out to be a triumph. By emphasising the immediate reduction in VAT and the bringing forward of child benefit uprating, tax credit increases and pension increases (the Chancellor is also bunging an extra one-off £60 payment to single pensioners and £120 to pensioner couples) the only conclusion must be, therefore, that a quick dash to the polls is uppermost on the Prime Minister's mind.

The notion that borrowing on such an unprecedented scale can ease a recession has always been nonsense and everything in yesterday's package will make the recovery even more difficult in the long run. How on earth Mr Darling can claim, with a straight face, to make predictions about the books being in balance by 2015/16 defies belief. What is certain, however, is that whoever forms the Government, after the next general election, will look back on this report as adding to the causes of all our future economic woes. It was only six months ago that the Chancellor made his over-optimistic forecasts about growth of 1.75 per cent for 2009 which turned to dust within weeks. If his forecast a year ahead was so inaccurate, how can voters trust his judgements of future growth and borrowing forecasts for up to six years ahead.

But no one should under-estimate the temporary breathing space this pre-Budget report has given to the Prime Minister. Combined with the reductions in mortgages, several million voters will see their disposable incomes rise by an average of £100 a month – provided they remain in employment.

The Chancellor is hoping that this additional cash, aided by the VAT reductions, will continue to be spent. I doubt this will actually occur. Surely after all that has happened following the credit card binge, most house-holders – having already learnt to cut back on discretionary spending, following the fuel and food price increases earlier in the year – will squirrel away any spare cash for the nightmare that lies ahead when the national insurance increases (an income tax rise in all but name) kick in in 2011.

Nevertheless, all this leaves the Tories in a tricky place. George Osborne is right to emphasise the ticking tax time bomb that has been placed in front of every elector, regardless of which party forms the next government. But there are enough short-term crowd pleasers to energise the Labour base with a clearly redistributive package from the super rich to Old Labour's core voters. Although the decision to increase the top rate of tax to 45 per cent for those earning over £150,000 raises little revenue, it will be well received by anyone angry at fat cat city slickers. The Tories will find it difficult to oppose this gratuitous tokenism but it will play well on the council house doorsteps.

Logic says the Tories should oppose every major measure announced yesterday. But the politics make this difficult. While Mr Osborne effectively summed up the nature of the recklessness of this pre-Budget report, he is open to the charge that he has no alternative to offer to address the current crisis. The Government has successfully painted the opposition as the "do nothing" party. A party vice-chairman, John Maples, stated a home truth when he said that recessions had to "take their course".

Frankly, there is probably little the Tories can do, in the short-term, apart from sit out their dilemma in the hope that the rise in unemployment will make voters understand that this package will turn out to be a chimera. And unless the Tories face up to recommending real reductions in public expenditure, the only choice at the next election is which party voters prefer to increase their taxes.

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