Tuesday 25 November 2008

Did someone just say something?

I wasn't going to bother to comment on the Pre Budget report because it seems to me to be irrelevant to the real world. But East Anglian Troy asked, so I shall provide (rather like the Government?).

What actually happened?

The Chancellor was more honest about Government finances, or rather the scale of the debt we all face. He did not include all the hidden stuff, like public sector pensions or the Public Finance Initiative funding which will come back to haunt all those new hospitals and schools over the next few decades, but he did talk about the rest.

But most people had already suspected just how bad things were.

He announced some helpful matters for small businesses, although I suspect the most significant (the £1bn facility) will require many bureaucratic hoops to be gone through before it is accessible. And he announced a 13 month small cut in VAT. Most businesses will probably not pass that on, so it will help maintain their margins and therefore employment levels.

But why not do something useful? Like cut NICs to keep people in jobs? Or increase tax allowances to take people out of the tax net completely?

And then he also announced tax increases from 2011 (after the next election, so hoping people won't notice). The increase in higher rate tax will probably lead to no change in tax revenues, the higher NICs will make people worried. And he increased tax on alcohol, cigarettes and fuel to offset the VAT cut. The last is particularly disappointing for those living in rural areas.

So this was as much fiscal penalty as stimulus.

So in summary: as many people have suggested, new labour has gone, we face a big recession and the public finances are in a mess. But that was true on Sunday as well as today: yesterday's statement was not really necessary. He hasn't wanted to annoy his client state (see Simon Heffer on that one); he doesn't have the money to make much of a difference and what he has done is mostly a wasted effort.

As I had noted earlier, markets did not seem to think the UK was well positioned. Nor, now, does the OECD: they predict Britain will have the deepest recession of any major eceonomy next year.

Perhaps the most interesting aspect was that George Osborne, the shadow chancellor, apparently spoke well in reply. And this after Cameron gave a good speech (I thought) at the CBI conference. My sense has been that the Tories have, ever since Northern Rock, not provided a consistent and coherent response on the economy. Could this be the start of effective economic opposition? I hope so...

PS - since writing the above I see on Channel 4 news that tucked away in the small print of the pre budget report there is a small section on public sector pensions, although it does not deal with the capital cost.


Anonymous said...

Who was it that voted in Labour?

CJ xx

Troy said...

What are the odds on VAT being 20% by the time of the 2012 Olympics?

I can't believe how badly they have handled this emergency budget. Now Citigroup are forecasting gold at $2,000 in the medium term which says all that needs to be said about the global situation.

Arthur Clewley said...

You probably saw the Look North report from Cumbria where they visited a outdoor gear shop and the owner brandished a pair of boots that were £100 and now £97.87,and for this utterly futile reduction he had to reprice 28,000items of stock, every sock, keyring and bootlace in the whole place, before the rate changes again in a year's time