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What the Chancellor should do in the budget

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magicianRe-establish the meaning of prudence

Alistair Darling has an opportunity to make a name for himself in Wednesday’s Budget Speech, a golden chance to emerge from behind the Prime Minister’s shadow and attempt to get a grip on the economy now facing the effects of global financial turmoil, ill prepared after ten years of mismanagement by Gordon Brown.

But to do this, he must first be honest with the British public, put away the magician’s hat and the conjuring tricks, and admit to us all that strict spending and borrowing targets have been blown out of the water by Northern Rock. He simply cannot conjure up a Budget without acknowledging the effects of a £110bn “off balance” expense, it would be naive and dishonest and would betray a dreadful lack of trust in the ability of the public to understand his limited room for manoeuvre elsewhere.

Despite the acknowledged growth in the UK economy over the past decade Gordon Brown, as Chancellor, never did put a great priority on paying off the debts of UK Ltd., and continued to borrow as spending forged ahead of revenue and the public sector continued to grow and grow. This Labour government has never managed to produce a budget surplus, and has always spent more than it gathered in taxation – if we, as individuals and families enjoyed ourselves in the same manner the court system would be overloaded with bankrupts.

The debt that this government has piled up is paid for by you and I and it now accounts for almost £575bn per annum, can you imagine the size of the interest? (source – Office of National Statistics)

UK govt. debt

Michael Fallon writing in The Spectator tells us that;

“Overall debt today is £541 billion, £69 billion higher than planned five years ago.

Who pays for these mistakes?   We all do.  Debt interest now costs as much as the entire defence budget.  Northern Rock adds even more.

The biggest burden falls on those at the bottom.  The lowest paid who must pay twice as much tax as those earning the same in Ireland.  The pensioner struggling to pay ever-increasing council tax from a fixed income.   Small businesses whose tax rate is going up this year.”

It is plain to see that Chancellor Darling must announce a halt in the inexorable rise in public spending, and a freeze on civil service recruitment for all but the most important and specialised positions. Financial assistance to the myriad of Quangos must also be severely curtailed, and a drive must be made towards repaying some of the nation’s crippling debt. These measures should be balanced, in a fairly neutral budget, with rationalisation of Capital Gains Tax and removing millions of hard pressed working and middle class families from the bottom end of the tax system.

The “Credit Crunch” will result in less liquidity and reduced capital availability,  investment may suffer as a result, hence the need to look ahead now and plan to reduce the burden of taxation on small and medium sized companies.

John Redwood thinks that Darling could could start by cancelling the nationalisation of Northern Rock and putting in place a proper banking package, to manage the taxpayer debt down over a sensible time period with clear controls and a repayment schedule. This would prevent the large increase in public indebtedness that will result from the inclusion of all Northern’s obligations on the public balance sheet. Personally, I think it’s too late for that, and that action needs to be taken in other areas of the public balance sheet to help  close the yawning gap between government expenditure and taxation revenue.

There is also a clear warning to the Conservative Party in this scenario of out of control public finances, and that is do not tie your hands by committing to outreach the spending and failures of Gordon Brown!

Whatever tinkering Alistair Darling decides to do with the “headline grabbing taxes” on alcohol, tobacco, fuel, road taxes etc., he must not allow the chance of fixing the bigger picture pass him by. His budget should be neutral but with a greater emphasis on relearning the meaning of prudence, a word much used by the profligate Brown in his budgets, by halting and scaling back the size of the state sector, reducing spending, and repaying debt.

Brown’s years as Chancellor have not been as glorious as the spin doctors would have us believe, this is Darlings biggest opportunity to date to show that he is his “own man”.

Written by curly

March 10, 2008 at 1:28 pm

One Response

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  1. “Brown’s years as Chancellor have not been as glorious as the spin doctors would have us believe, this is Darlings biggest opportunity to date to show that he is his “own man”.”

    Come on, you know Gordon Brown wrote the budget! If Alistar Darling “was his own man” he would not be in the cabinet!

    DOppenheimer

    March 12, 2008 at 5:49 pm


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