Monday, 24 November 2008

Getting it wrong

It takes a special sort of genius to mess up both the politics and the economics of a Budget statement, but I reckon the Chancellor managed both today in his 'pre-Budget report'.

First, the politics. You would think that announcing a £12 billion tax cut (VAT down to 15%) would be the sort of thing most Chancellors would dream about. Yet this was leaked over the weekend, so when he announced it in the middle of a long and dull statement (lasting nearly an hour) Alistair Darling barely raised a cheer. Likewise the 45p income tax rate on the highest earners would have been red meat to many on the Labour benches, but they had heard about it on the news the night before. The only new stuff was fiddly things like bringing forward the April child benefit rise to January, a one off increase in the £10 Xmas Bonus, and then unexpected bad news like National Insurance increases. By the end, the Labour benches looked pretty demoralised.

Second, the economics. This was a one-off chance to do something bold to stimulate the economy. But if people know tax rises are coming, then will they spend? And are people going to spend, spend, spend because shop prices have been cut by about 2%? Marks & Spencer know a thing or two about sales, and they reckoned a 20% discount would attract custom last week. The VAT cut - though costing a fortune - just looks like small beer.

What should have been done was a massive programme of investment in the things we need for the present and the future. The Chancellor says he will insulate an extra 60,000 homes, but there are over 3 million in fuel poverty. A huge programme of home energy efficiency would create jobs, save fuel bills for hard-pressed pensioners and other householders, and benefit the planet. Likewise we could have insulated our schools and hospitals to decent standards, creating jobs, freeing up money for education and health and benefiting the planet. We could also have done more to upgrade the National Grid - onshore and offshore - to be fit for the low-carbon economy that we need to move towards.

Today was a once-in-a-lifetime chance to do something for the long term. Instead all we got was a temporary tax cut that probably won't deliver.


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