Budget 2010: Darling’s roadmap for recovery
The Budget will put Labour values into practice, while the Tories are hidebound by outdated dogma
Last week’s Budget foreshadowed the general election debates ahead. Tax and spend will feature prominently. While the financial crisis and the recession may be yesterday’s news, they will continue to have an impact for many years. On the plus side, the public finances are stabilising and the Budget highlighted the clear road map for reducing debt as the economy grows. Less enthralling is the thought of spending cuts which Alistair Darling accepted might be “tougher and deeper” than under Margaret Thatcher. However, the greater risks to the economy a Conservative government would bring have become more apparent.
Last year’s Budget was a sobering affair. The banks had just been bailed out again and the projections for the public finances showed the annual deficit ballooning out to around £175 billion for a couple of years. Net debt was forecast to rise from 46.5 per cent of gross domestic product in 2008/9 to 79 per cent in 2013/14.
That Budget contained a stimulus package, but also a commitment to reduce debt levels over time. The Chancellor was caught between the need to maintain the confidence of the market for government bonds and the need to cope with the deepest recession for decades. His Budget charted a finely balanced course. In effect, private sector debt has been transferred to the Government’s balance sheet. This means that the private sector is now in surplus and may stimulate a faster recovery than some are assuming. If Government debt had not risen, we would be in a depression with large-scale unemployment. It is easy to forget just how much confidence fell across the economy only 18 months ago.
The public finances have performed slightly better than Treasury expectations over the past 12 months. Tax receipts have been higher than projected. Unemployment has fallen less than forecast, which means higher income tax receipts and lower welfare spending. The Treasury has also again revised down its estimate of the structural deficit. The structural deficit is that part of the debt which is regarded as permanent unless we do something about it. Net debt is now expected to peak at 74.5 per cent of gross domestic product, with the annual deficit peaking this year at £167 billion. The implication is that there is a little less work to do to put the finances back on a sustainable footing. There was a welcome surprise from the bank bonus tax. This is now expected to bring in £2 billion rather than £500 million. In part, this must mean the banks have ignored pleas to restrain bonuses. Instead they have opted to divert more shareholders funds to individuals who have ridden the wave of easy money provided by taxpayers.
This focus on investment and jobs is a key message of this Budget which Labour will take into the general election. It is a sharp contrast to the approach taken by the Conservatives in the past two recessions. Unemployment, then above three million, was regarded as “a price worth paying”. Some families and communities are still paying that price. A Labour government worth the name will always put jobs first.
The extra tax raised will now form part of a new £2.5 billion stimulus package to “help small business, promote innovation, invest in national infrastructure and key skills”. Darling outlined measures to help small businesses, including helping them get easier access to bank finance. A new “Green Investment Bank” will invest in green transport and energy projects. The guarantee of a job for all young unemployed for six months was extended. First-time homebuyers will be helped. The new universal banking obligation, which gives everyone the right to a basic bank account, is another sign of Labour values being put into practice.
In his reaction to the Chancellor’s speech, David Cameron’s reference to future tax rises as “ticking tax bombshells timed to go off the day after the election and that will destroy our recovery” contained echoes of the Conservative 1992 election slogan. Does this herald a similar Tory campaign theme this time around? If so, Cameron is implying that the Conservatives would cut more spending instead to compensate.
The problem with Tory economic policy is that it is driven by slogans, lurching from one to the next. That is why George Osborne has little credibility, even in the City. Labour needs to be firm in pushing back at every Conservative pledge on the economy to expose the lack of real thinking behind it. Tory plans to cut spending deeper and sooner than already planned would risk the recovery for the sake of dogma.
It was clear from the beginning of the financial crisis that Government spending would be under pressure and that progressive politics would change. Some on the left saw a “progressive moment”. Some of us shuddered because, while the Government acted with more wisdom than has yet been widely appreciated, clearing up the mess from the banking debacle will limit future spending. That means a rethink is required. Progressive politics for this decade must start with jobs, but will have to find new ways to promote equality of opportunity. Meanwhile, the Budget confirmed that the public finances are on track and that Labour’s priorities are different to those of the Conservatives. As we move from the phoney election battle to the real thing, Labour candidates and activists will be working hard to get this message across. Millions of livelihoods may depend on it.
This article was first published in Tribune on 2 April 2010.