Triumph or lost opportunity? The jury's still out

AS ALISTAIR Darling, the Chancellor, rose to his feet at 3:29pm yesterday, the Commons benches bristled in anticipation at one of the most important speeches on the UK economy for decades.

It had been billed as a likely maker or breaker for the economy in these troubled times, and all eyes were on Mr Darling as he prepared to deliver his Pre-Budget Report.

Analysts were primed to delve into the detail of the Chancellor's attempt to kickstart the economy, and the markets, which had enjoyed a promising morning, were ready to react.

The Chancellor was quick to acknowledge the current economic turbulence but his boast that the UK was in a "relatively" strong position to weather the storm was met with derision from the benches opposite.

The jeers and gasps were louder than the muted cheers from his own team. Perhaps this was because of the revelation that the national debt will soar to £118 billion next year – much more than previous estimates. And despite the leaks about the VAT cuts and new top rate of income tax for the wealthy, the statement contained another bombshell. A tax hike for most people in the form of 0.5 per cent on National Insurance.

The Chancellor had just unveiled the biggest giveaway in recent memory, largely targeted at the poor, pensioners and families with children, as well the often neglected small businesses. But with it came a massive takeaway in the form of duty rises.

Many of the measures outlined in the 55-minute speech – except for the tax rises – will be brought forward to January, leaving the door a tiny bit ajar for an early general election, despite the Prime Minister's best efforts to slam speculation shut on the subject.

But was the package, worth £20 billion, enough to rescue a faltering economy or to salvage Gordon Brown's hopes of being elected at least once by the public? Critics point out that just £2 billion will be raised by the new top rate of tax on the rich, defined as anyone earning £150,000 or more.

One thing that Mr Darling made clear was that things were not about to get better any time soon. The biggest guffaws were reserved for his confirmation that the massive debt levels would not fall within the government's own fiscal rules until 2015-16.

George Osborne, the shadow chancellor, pointed out that it was a PBR designed to fit in with political cycles rather than economic ones.

In a performance that was widely hailed, he declared the Chancellor was now on course to borrow more than all his predecessors put together.

"The choice at the next election could not be clearer – a record borrowing binge and a lifetime of tax rises under Labour or fiscal sanity and lower taxes that last under the Conservatives."

And Vince Cable, the Liberal Democrat's treasury spokesman, who has gained respect through his predictions about household debt and the property crash, said: "This is not a normal pre-budget statement, this is a national economic emergency and what is required alongside radical cuts in interest rates, radical action on bank lending is a serious tax cut concentrating on the low-paid."

Another "wisehead" in the Liberal Democrats, Sir Menzies Campbell, said that the Chancellor was taking a huge gamble in predicating his remedy for the economy on growth rates of up to 2 per cent in 2010. "If that is not achieved, then his package will look tarnished and since there has to be an election by June of that year, the political consequences might be severe."

Sir Menzies dismissed the idea of an early poll on the back of the PBR. He said Mr Darling had not given enough incentives to voters, and described the mini Budget as a "lost opportunity".

"The Prime Minister has played the Grand Old Duke of York once. To do so again would be fatal for him."

Is this the sort of background against which the government can call a snap election?

Derek Simpson, Unite's joint leader, probably thought he was paying the government a compliment when he said: "The report gives Britain a reason to be optimistic this Christmas and beyond. This is a welcome warm-up exercise after 30 years of inaction and neo-liberal economics. Gordon Brown has thrown-off the shackles of New Labour to reveal the real Labour."

It is precisely these shackles, however, that made New Labour palatable to an electorate largely suspicious of left- of-centre governments.

In one sweep, Mr Brown and Mr Darling appeared to be casting aside pro-market reforms and neoliberalism to enact a largely socialist budget.

But the Institute for Public Policy Research, once described as Tony Blair's favourite think tank, did not seem to have those concerns.

Lisa Harker, co-director, said: "In tax terms this was the most redistributive budget statement of the last 30 years.

"By introducing a higher rate of tax, raising national insurance contributions, rebalancing and increasing personal tax allowances and enhancing child and pensioner benefits, the tax burden will be shifted away from those who can least afford it."

Tom Harris, the Glasgow Labour MP, told the Labourhome website: "This is not the death of New Labour; New Labour isn't simply about a low tax regime – it's about a new political culture in which tax rises, where they become necessary, are only reluctantly imposed and even then, only if the wider consequences for society can justify that measure. So when National Insurance was raised to generate income for the health service, that was New Labour in practice."

And even the Tories appeared to concede that the stage had now been set for a continuation of high taxes.

A very senior figure in the party admitted that the high rate of income tax could be here to stay. "Reversing this will not be a priority for a Conservative government," the source said.

Russell Hills, head of tax for KPMG in Scotland, said of Mr Darling's economic rescue bid: "He is like the little boy who put his finger in the dyke. He may stop the flood in the short term, but the hole will need repairing."


Leaks eliminate surprise element

ANYONE watching the TV news over the weekend or reading the papers yesterday would have been forgiven for thinking the Pre Budget Report had already been delivered.

In the press and across the airwaves were the fingerprints of heavy leaking.

Eighteen hours or so before the Chancellor even rose to his feet in the Commons, avid blog watchers would have read speculation a cut in VAT to 15 per cent, and a new top rate of income tax on those earning over £150,000.

What this did was guarantee good coverage for the Treasury for at least a day.

How times have changed from 1947, when the Labour Chancellor of the time, Hugh Dalton, was forced to resign after his Budget was leaked.

John Carvel, a journalist, published the details in a London newspaper, just minutes before they were announced to the Commons.

But yesterday's rumours and innuendo failed to impress opposition MPs.

"Budgets and half-yearly budgets are supposed to be secret until the moment they're announced to the House of Commons, yet this one seems to have been trailed in huge detail," Michael Fallon, a member of the Treasury committee said.

"This is probably the most cynical and widespread leaking we've had."

Tory Peter Bone raised the issue in a point of order with Deputy Speaker Sylvia Heal.

He said: "The Chancellor's statement was widely reported in the media before it was made. Will you give advice as to whether the statement should have been kept secret and given to members first?"

The Deputy Speaker replied: "Exactly whose responsibility it was that it was leaked I certainly do not know."

But, she added, Speaker Michael Martin and his deputies "would like to see the statement made here first".

The Treasury refused to comment on the informed speculation. And Number 10 would not be drawn on the matter.

Letting slip the details of such market-sensitive information gave the government a few hours grace before the fine detail of the PBR could be studied. But no-one is under any illusion that ministers will be braced for much bigger questions than the source of the leak in the days to come.