Belfast Telegraph

Low tax take causes Darling winter blues

By David Prosser

For the Government's opponents, the January public finances figures are a political open goal. It wasn't just that tax revenues fell to such an extent that the Chancellor had to borrow money in the opening month of the year for the first time since records began in 1993, though that was a pretty useful piece of political capital.

Even better, the UK is now on course to borrow more this financial year, as a proportion of its GDP, than Greece (you know, that place in the Mediterranean where the world's bailiffs have come a-knocking).

Our tragedy is not yet of Greek proportions: total debt in relation to GDP is much lower here, though we are on target to move up the European league of indebted nations very rapidly indeed.

But what will especially worry Alistair Darling is that his borrowing forecast for the 2009-10 financial year as a whole now looks to be in peril.

Worse, the final verdict on that forecast will arrive with March's figures in mid-April, just weeks before the general election. Yet another political gift to Mr Darling's foes waiting to be unwrapped.

What then, might save the Chancellor's forecasts? One possibility is lower unemployment benefit spending, with joblessness rising less quickly than many had expected — though further public sector job cuts might put that at risk.

A better hope is the one-off tax on bank bonuses, which the financial services sector has to pay before the end of the tax year.

Mr Darling's 50% levy on the banks' bonus pots was supposed to deter big pay-outs and bring in just £550m in additional income tax.

In fact, the policy is already a failure, at least in terms of its original objective, with both domestic and foreign banks going ahead with large payments to UK staff despite the levy.

As a result, the take from the super-tax could easily exceed £3bn. Compared with total government borrowing of £178bn this year, that's still a relatively trifling sum, but it could make all the difference between Mr Darling being able to say he has managed the public finances in line with his forecasts and having to admit he has overshot the targets.

Labour may, in other words, finally get some small payback for all the political capital (never mind the money) that it has invested in the banking sector, a return that Gordon Brown and his Chancellor no doubt feel is long overdue.

Bear in mind, though, that should British voters be more forgiving than the polls suggest, the international investment institutions now focusing their efforts on Greece and, to a lesser extent, Spain, are unlikely to follow suit.

If Messrs Brown and Darling do manage to hang on to power on a Thursday night in May, Friday morning may well bring the first attacks from the speculators.

Belfast Telegraph