BRITISH BUDGET:CHANCELLOR ALISTAIR Darling forecast the British economy would shrink by 3.5 per cent this year, with borrowing at a record £175 billion (€195 million) and government debt set to peak at 79 per cent of GDP in 2013/14.
With a new top tax rate of 50 per cent for people earning more than £150,000 from next April, Mr Darling presented his budget as a further “investment” in an economic recovery he maintains will begin by the end of this year.
He also set down general election battle lines with the Conservatives, echoing Prime Minister Gordon Brown’s insistence that it was necessary to spend and impossible to “cut” a way through the recession. “You can grow your way out of recession, but you can’t cut your way out of it,” he told a packed House of Commons, signalling Labour’s hope that the “invest” or “cut” arguments that served them well in the last two elections might benefit them again in the next.
Conservative leader David Camerons declared Labour was running out of time and money.
He described Labour’s claim to economic competence as “dead, over, finished”. He derided the government’s now-broken manifesto pledge not to raise the top rate of tax and the absence of the fiscal stimulus fore-shadowed by Mr Brown – and opposed by the Bank of England governor Mervyn King – in the build-up to the G20 summit earlier this month.
While the newly revised top tax rate, up from the 45 per cent originally proposed last November, was seen as an obvious attempt to wrong-foot the Tories, some commentators were swift to suspect a government attempt to “spin” attention away from Mr Darling’s promised slow reduction in expenditure levels.
While the chancellor insisted he could find some £15 billion in “efficiency savings” and maintain spending on front-line services like health and education, Mr Cameron said Mr Brown now found himself “on the wrong side of his great dividing line”. This budget, he said, represented a delayed tax rise and real cuts in spending.
Liberal Democrat leader Nick Clegg was equally scathing about what he called “a mish-mash of reheated announcements from a government skilled at raising false expectations”. Mr Clegg said people would wonder “what fantasy land Labour lives in” upon being told it was possible to lop £15 billion off spending without scrapping a single Whitehall project. He described the saving as “a supermarket sweep” and “a politician’s budget” designed to try and save the government’s skin.
Analysts also cast doubt on Mr Darling’s optimistic prediction for growth in the economy of 1.25 per cent in 2010 and 3.5 per cent the following year amid signs of growing concerns that the UK’s credit rating could come under scrutiny in light unprecedented levels of borrowing.
In addition to the new higher tax rate, Mr Darling announced a reduction of tax relief on pensions for people earning more than £150,000, while those earning £100,000 plus face losing their tax allowances. While the Conservatives signalled that reversing the new top rate might not be a priority for them in government, Mr Cameron attacked “the other taxes” – increased levies on beer and petrol. Tax on tobacco rose by 2 per cent at 6pm last night, with the alcohol tax the same effective from midnight.
The planned reintroduction of the fuel duty escalator would hit everyone forced to drive to work, the Tory leader said. “These people aren’t rich. These people have to work hard and they are going to have to pay the price of Labour’s failings. These aren’t taxes for the few, they are taxes for the many – introduced by this Labour prime minister”.
