The Chancellor of the Exchequer Alistair Darling delivered his Pre-Budget Report last Monday in which he outlined the direction in which he will be taking the economy over the next year and beyond.
The Pre-Budget Report is only ever intended as an outline of the government’s plans as economic policy can only be officially changed in the annual Budget each March. The reason this otherwise inconsequential government document garnered so much attention was down to the increasingly beleaguered state of the global economy. With the British economy predicted to enter recession in 2009 and an increasing number of companies shedding jobs in a desperate bid to save money, this downturn is starting to take a more human toll.
The Government will, therefore, be looking to stabilise the economy and ultimately win favour with the British public who abandoned them for the Conservatives over the summer, leaving them 10 points behind in the polls. In such a climate of uncertainty this Pre-Budget Report is surrounded by controversy.
So what, exactly, has the Chancellor offered? Well the Pre-Budget Report attempts on the one hand to give ordinary people more money in their pockets and on the other to save the government money, however this isn’t something this report does very well. The policies put forward in the Pre-Budget Report could end up costing the British population more than it saves as Alistair Darling tries to foot the bill for attempting to pull Britain out of recession. The 2.5% VAT cut that was hyped so much in the hours following its announcement boils down to very little indeed. In real terms, it means that the price of a Mars bar will be crashing by 1p, whilst a pair of Levi’s jeans will cost you £1.49 less than it did before. In fact, there is little reason to believe that businesses will reflect the VAT cut in their prices, as Cardiff Central AM and Welsh Lib Dem Spokesperson for Finance, Jenny Randerson points out: ‘a small cut in VAT won’t help poor and middle income families…we need real and lasting income tax cuts’. The Report also mentions that National Insurance payments will rise by 0.5% for all workers earning more than £20,000. This means that someone earning £30,000 (the average national income) will be £120 out of pocket.
The government will also be planning to borrow a lot more money. Borrowing will increase from the £43 billion that was predicted for this year to £78 billion and up to £118 billion for next year. Public spending will be brought forward, as the government invests in more social housing and increasing motorway capacity. The Shadow Chancellor, George Osborne, has accused the Chancellor of “bringing this country to the verge of bankruptcy” by increasing national debt which will have to be paid off through tax hikes once the economy recovers. There are also plans afoot to fill 500,000 vacancies with 20 major employers by speeding up recruitment and £15 million will be made available for free debt advice, along with plans to make it easier to get a mortgage which is great news for students and graduates.
At the end of the day, the Government can do little on its own to counter the current economic crisis. As Gordon Brown so rightly said, the answer to this problem lies in global action and in working together. The truth of the matter is that Finance Ministers have little control over when this crisis will end. What the government should have done was to give the British people more money, thereby kick-starting the British economy, but they have chosen to cut VAT, which may not necessarily be passed on to consumers, but looks good in the headlines (remember the 10p tax rate debacle?) The most effective way of giving people more money would surely have been to cut income tax. Instead, the government has chosen to give itself more money. This is not the right way to beat a recession. All this will achieve is more debt and the same mistakes again. We’re only in this mess because we (the government and the public) had so much debt in the first place.
