By Richard Hall, Managing editor of The House Magazine.
While the prime minister Gordon Brown and business secretary
Lord Mandelson have in recent weeks been fronting
the government’s response to the economic crisis, chancellor
Alistair Darling has taken a lower profile.
This is because he is preparing a Budget that comes at the most difficult
time, economically and politically, for the government since
Labour was elected in 1997. The Budget’s presentation is more than
a month away, and the crucial G20 global economic summit takes place beforehand,
but key decisions about the government’s response to a string of continuing
problems are now being taken inside Downing Street and the Treasury.
Last week the Bank of England’s presses started to roll as it began the process of
pumping £75bn of new money into the UK economy. That the start of ‘quantitative
easing’ was met with bafflement and resignation rather than condemnation
and outrage illustrates the extent of the chancellor’s problems.
Quantitative easing, the slashing of interest rates to 0.5 per cent and the temporary
VAT reduction have been the main weapons so far deployed to fire the economy
back into growth. The prime minister and chancellor must now decide whether
any further measures can be taken. Last week Darling sounded a cautious
note about the scale of any additional fiscal stimulus. The parlous state of the public
finances suggests that a tax giveaway, combined with fresh spending commitments
on new or fast-tracked capital projects, will remain just a Keynesian dream.
Extending the period of the VAT cut wouldn’t pack a political punch, but could
be part of a limited Budget stimulus.
This will frustrate many Labour backbenchers who would welcome, say, the conversion
of the promised rise in the top rate of tax to 45p after the next election, to
a larger hike implemented this year. What better way to signal that the government
is on the side of ordinary voters than to show that those still lucky enough
to hold well-paid jobs should feel a little more of the economic pain?
If Darling won’t be cheered by Labour MPs for soaking the rich on Budget day,
he could make a crowd-pleasing commitment to compensate those who are still
missing out after the scrapping of the 10p tax rate. This political storm abated last
spring when the chancellor temporarily raised tax allowances to ensure that
fewer low- and middle-earners lost out, but he must find a lasting solution in this
year’s Budget.
On public spending, Darling’s hands are tied by his 2007 comprehensive spending
review. Three-year allocations were introduced in the good economic times
to help departments plan for the long term, but is the system nimble enough to
cope with the demands of a recession?
With firms continuing to lay off workers, the pressure is on Darling to cut back
on small business costs. This could be done by reducing companies’ National Insurance
contributions.
The prime minister last week acknowledged to MPs the difficulties presented to
savers by tumbling interest rates, and pledged to look at ways in which they could
be helped. With pensioners among the hardest hit, expect the PM’s words to be
followed by action in the Budget.
Changes to international banking regulation and tax haven reform depend on the
outcome of the G20, but the Budget is crucial to the next stage of the government’s
recession-fighting plan, and will sharpen the dividing line between the parties as
the next election hoves into view. After all, by the time of the following Budget it
will be spring 2010, and Gordon Brown will be preparing to see the Queen.
* The House Magazine, partenaire britannique de La Revue Parlementaire, a été créé en 1976 par un groupe de députés afin de
traiter et débattre de l’ordre du jour parlementaire de manière impartiale mais incisive. Il est depuis 30 ans l’hebdomadaire des
parlementaires britanniques.
