Darling passes the hot potato
If anyone was in any doubt as to the economic crisis facing the UK, then Chancellor Alistair Darling dispelled that doubt at the despatch box yesterday. The government is to borrow unprecedented sums of money — £175bn this year — just to keep the economy going and even by his calculations, which many think are optimistic, the country will not start to balance the books for a decade.
Given that scenario, it was not unreasonable to expect a harsh budget, along the lines of the recent dose of medicine dispensed by the Finance Minister in the Republic. Instead, Mr Darling gave out a sugar coated pill. He announced an increase in taxation — but only for the top 1% of earners, those on annual salaries of more than £150,000.
Although he was breaking a Labour vow by former Prime Minister Tony Blair that taxes on the upper tiers or earners would not increase in this Parliament, it was a move which will probably find favour with ordinary taxpayers, who blame high earners for much of the current economic woes.
Mr Darling faced a difficult task in this Budget.
The debt levels are much greater than he had anticipated, even last November. The economy will shrink much faster than he forecast — the latest estimate is by 3.5% this year.
Unemployment has gone over two million, the highest figure since Labour came to power and tax revenues, accordingly, are down. Benefit increases mean an inevitable increase in public expenditure, so savings will have to be made elsewhere, probably in front line services, if his target of efficiency savings of £9bn by 2013/14 is to be achieved.
Whatever the economics of the situation demanded, the reality of politics meant that he could hard
ly risk across the board tax increases.
Penalising people through additional taxation at any time is a risky business for governments; doing it in the middle of recession with an election looming would be political suicide. Mr Darling has postponed the really harsh doses of medicine until 2011, although it may be a Conservative government which will administer them.
No matter which party wins the next general election, the bills will have to be paid.
And those bills could be even higher if Mr Darling’s calculations or prediction that economic recovery will begin next year are wrong.
He is expecting the economy to bounce back swiftly from this recession, but many people feel that is overly optimistic given the depth of the recession. As well, the Budget was high on sentiment but fairly low on stimulus as far as encouraging investment and business growth. Quite simply, in spite of record borrowing, the Chancellor has very little money available to pump prime the economy.
In Northern Ireland, there was welcome news that the efficiency cuts demanded over the next two years — £122m — were lower than expected and will be offset by £116m of extra short-term funding. There will be extra money through social security changes and £28.7m additional funding for policing.
Largely, it was a fairly neutral budget as regards its impact on the local economy. The acid test will come on how to find the efficiencies — fewer MLAs, fewer quangos, a speeded up reform of local government? — and how soon will water charges be introduced and the freeze on regional rates lifted.
No matter what Mr Darling said, painful days are ahead.