The Economist is gunning for a dishonest Brown

The Economist is rather scathing about the budget in this week's addition calling it a downright dishonest one.

Facing with all the pressures of the current economic crisis,it says that the government played

two all-too-political sleights of hand: a string of over-optimistic economic assumptions and the misleading message that soaking the rich could absolve the other 98% of the population from personal sacrifice.

It continues by describing the fiscal plans as

like one of those childish excuses that begin with a little exaggeration and morph into outright falsehood.

and as for the top rate of tax

The second fiction is that squeezing the rich can absolve the rank and file from privation

and concludes that

April offered Mr Brown two shots at reviving his flagging premiership. The G20 went well. But by attempting to use the budget for political advantage rather than engaging the nation honestly in a slow, shared transformation, the prime minister has done neither himself nor his country any favours. The public is losing patience with him, and so is this newspaper.

The most important number is £12.5 trillion

Many numbers are being thrown around in the wake of the budget most notably 50 per cent and £175b but this excellent post from Chris Dillon maybe puts something into perspective.

The most important number about today’s Budget is $12.5 trillion. That’s the amount of money the private sector is likely to save around the world this year*.
This means that the government can raise the £220bn it plans to borrow in the gilt market merely by attracting 2.5 pence for every pound saved**. This is smaller than the share of the UK in the global economy.

What the media commentators are saying about the budget

A wide selection of views here


Martin Wolf writing in the FT describes a desperate chancellor flying on a winga nd a prayer

Only Alistair Darling, most emollient of politicians, could manage to make this Budget boring. He is telling his country that its prosperity was as fraudulent as a collateralised debt obligation, that Gordon Brown’s boasts of “no more Tory boom and bust” are a joke, that the forecasts he gave only last November were nonsense, that the public finances are deteriorating at a rate never seen in peacetime and that, to cover these failures, he is indulging in populist attacks on the highly paid. To make this feel boring is an achievement.

Steve Richards in the Independent writes that

The constraints on Darling were almost comically intimidating, an economy facing frightening levels of debt, the markets watching like hawks to judge whether a route towards more balanced budgets was credible, the wider electorate wondering about the impact on their lives, the users of creaking public services fearing that they will creak more in the years to come.

but adds that if the growth are proved wrong

he will have no wriggle room, politically or economically, between now and the election.

Peter Oborne in the Mail describes the budget as a desperate attempt to cling to power.This could have been the moment he writes

that Alistair Darling made his reputation as a bold, visionary statesman with the courage and personal stature to rescue Britain from catastrophe.But no, Alistair Darling ducked the challenge. He ran away from the sound of gunfire. He failed the nation and he failed himself.

Polly Toynbee laments the fact that it ahs taken Labour this long to produce a people's budget

The 1.5% who earn over £100,000 will yet again claim an assault on "middle England". They will protest that productivity, growth, aspiration and the very future of the nation will be imperilled by skimming just a little cream off top earners. They will warn that City talent will now take flight, the golden geese fleeing to Zurich, Monaco or Dubai. At last, so late in the day, Labour has called their bluff: let them go. There is no global shortage of those who ran banks into the ground.

And in the same paper Will Hutton believes that the Chancellor did as well as he could

He must seethe at his inheritance, yet he has not uttered a public word of reproach. Instead he has loyally owned the crisis as his own, and his considered calmness is becoming a considerable economic and political asset. Brown and the Labour party are lucky in this chancellor.

Not the stealth tax

It appears that the headline figures in the budget statement over the top rate of tax is hardly the revenue earner that we might think

According to Nick Robinson who is studying the Treasury's Red Book of Budget stats

the new top rate of income tax will raise an estimated £1,130m next year and the pension claw-back a mere £100m, whereas the fuel duty increase will raise £1,250m.

Gap in tax revenues shows the problems

Jim Pickard over at the FT's Westiminster blog shows just how tax revenues have plummeted against forecasts as the recession deepens,one of the major reasons for the worsening fiscal deficit.

Projections for 2009/10 are:

Income tax £140bn (against an estimate of £152bn in 08/09)

VAT £63.7bn (£78.4bn)

Capital gains tax £2.2bn (£7.8bn)

Stamp duties £5bn (£8bn)

Inheritance tax £2.3bn (£2.9bn)

Petroleum revenue tax £1.1bn (£2.6bn)

That is a gap of £33b against the forecast

Budget round up

Well I managed to miss the budget statement as I was helping out at Application day at the University so just catching up on the measures now.

Obviously the big shock being the top rate of 50 per cent income tax for incomes over £150,000 and the loss of tax relief on pensions for that bracket as well.

Scary deficit figures of £175b this year falling to £173b next year and £140b the year after.Those figures obviously dependent on the growth figures being correct.

The re forecast for this year being a negative of 3.5 per cent,1.25 per cent next year and back to 3.5 in 2011.

As the ramifications of that are being felt the IMF forecasts a world wide slump of 1.9 per cent this year and forecasts that the UK will fall 4.1% and a further 0.4 per cent next year.

Strangely the Footsie seems unperturbed breaking the 4000 barrier though sterling is down against both the dollar and the Euro

David Cameron did a good job when it came to soundbites but offered little in the way of constructive alternatives.

Nick Clegg called it "a mishmash of recycled announcements from a government skilled in raising false hopes, but incapable of delivering practical help”.and Vince Cable said that the Chancellor's predictions were based on

wildly optimistic assumptions about a sudden recovery,on the basis of nothing whatever. There are no indications about what tough medium term choices there are going to have to be in public spending."

They are also saying that unemployment in the UK could reach 9.2 per cent by the end of next year.

What the commentators are saying about the budget

In the Times,Rachel Sylvester writes that voters will no longer tolerate out-of-control spending.

The Government faces a £60 billion bill for saving the banks, and ministers admit that they have no idea whether tax revenues from the financial services industry will return to the levels they reached before the credit crunch.

She adds that

The traditionalists argue that once economic growth returns, the hole will gradually be filled without the need for drastic tax rises or swingeing public spending cuts. The modernisers are pushing Mr Brown to think more radically about the scale and scope of the State. Everything - including the NHS, schools and the benefits system - should, in their view, be on the table.

Steve Richards in the Independent thinks that the Government wants to prove it can makes cuts without impairing public services.The situtaion he believes is

Labour's fiscal expansionism versus Tory spending cuts becomes a more subtle split with Darling seeking to stress that he will cut too, while also finding room for an investment package with a green tinge, a Budget for growth as Peter Mandelson has put it, but a Budget with cuts as well: another convoluted third way, perhaps.

Polly Toynbee in the Guardian believes that tomorrow presents a unique opportunity for the Chanellor to go down in history.

By emulating the spirit of the People's Budget, Darling can give voters a rock-solid reminder of what Labour is for

She says that Darling should

Give voters one rock-solid reminder of what Labour is for. It would restore due north to Labour's spinning moral compass. Social justice comes first, even in dark times. I hazard the dangerous guess that Alistair Darling will do it.

Mary Ridell in the Telegraph believes this is the final swansong for Labour and agrees with Toynbee.Darling could do worse than emulate another crowd-pleaser

David Lloyd George who declared war on "poverty and squalidness", in a budget that brought in a supertax on the rich. With Britain once again in recession, and with Tory fortunes on the rise, there are calls for Mr Darling to follow the Welsh Wizard and unleash another "People's Budget".

She thinks that the Chancellor could

create a bonfire of the inanities and throw on the fripperies of the good-time years, such as Trident (replacement cost £65 billion), ID cards and the quangocrats earning more than the PM. At the least, he should invest in the poorest families. The Child Poverty Action Group (CPAG) is calling for £3 billion to go towards the Government's pledge to eradicate child poverty by 2020. This would also stimulate the economy: by the CPAG's calculations, each pound invested in tax credits and benefits would boost the economy by £1.60.

Alex Brummer in the Mail says the budget is

going to be a horror story. No amount of 'greenwash' in the shape of incentives for more fuel-efficient cars, or verbal optimism about prospects for recovery, will be able to detract from the depth of the slump and its unprecedented impact on the public finances.

and reminds us that

the real shock will come in the current year and beyond, with borrowing now estimated to reach £160billion to £170billion in the fiscal year 2009-10, when it will hit 11.1 per cent of total national output. For reference purposes, that is more than three times the levels demanded by Maastricht as part of a nation's criteria for entry to euroland.

A line that Peter Riddel takes in the Times when he writes that

The public does not yet realise how much pain it faces to get the public finances back on track.

And in the same paper let's not forget the Green issue as Nicholas Stern writes

Tomorrow's Budget is a critical test of the consistency and credibility of the Government's policies on climate change.

Be bold Chancellor

At least that is what one economist wants.

Amid all today's reports about what the Chancellor has or hasn't got to cut,Tony Dolphin Senior Economist at the ippr advices the following.

He should announce a £1,000 increase in the personal tax allowance and increases in benefits and child tax credits to ensure that the Government achieves its goal of halving the number of children in relatively low-income households by 2010-11. This will cost about £10 billion a year.
He should announce tough limits on the growth of public spending from 2010-11, while making it clear that extra resources will continue to be made available for priority areas such as education, health and childcare. Major projects, such as the replacement of Trident submarines, will have to be cancelled.
He should reaffirm the moral case for progressive taxation to finance public spending. He should increase the top rate of tax to 50 per cent for taxable incomes of more than £150,000. At the same time, to ensure the rich pay their fair share of taxes, there should be a major clampdown on tax avoidance, tax reliefs and tax havens.
He should announce plans to examine the feasibility of a tax on carbon emissions and a land value tax.