A rock and a hard place
23 Apr 09
It’s make or break for our Chancellor, but the measures that will save or damn him are not those outlined in yesterday’s Budget
This week has been dominated, of course, by the Budget. Thanks, by the way, to Alistair Darling for setting the most stressful date possible from my point of view – the day before CA Magazine’s press deadline. Somehow I doubt that was a consideration for the Chancellor!
This was always going to be a tough Budget for Alistair Darling. With an election looming – very likely next year, and very likely a defeat – and the worst economic crisis in a lifetime, here was a chance for him to show his mettle.
Despite the mind-bogglingly huge figures for Government borrowing and the shock announcement of a much bigger than expected tax hike for the rich, this Budget seemed a bit, well, insubstantial. Two conflicting imperatives – don’t do anything that threatens to shrink the economy even further, but somehow find the revenue to pay for the sums the Government is borrowing - made action very difficult. There was actually very little scope for Darling to use the tax system to revive the economy and help businesses and individuals survive the downturn.
The temporary boost to 40 per cent for capital allowances will be welcomed by business. Largely, though we saw some modest measures – like the trade credit insurance top-up that falls well short of what the retail industry was looking for – and some good old-fashioned class politics. Hitting the those earning over £150,000 with a 50 per cent tax rate won’t actually raise a vast amount of money, indeed it seems it will only an estimated 300,000 people.
It will, however give the Conservatives a political problem. At the next election, do they commit to cutting Darling’s “super tax” – which could alienate those on more modest incomes facing job insecurity and cutbacks in public services – or do they accept it?
The real action is going on in the money markets, and this is Darling’s real gamble. The billions spent on “quantitative easing” and stabilising the banking system will either work, or they won’t. It may take three or more years before we find out if Darling is or was a good Chancellor. By that time he may not be in the job.