Tories criticise Darling's £20bn recovery package

THE BATTLE lines for the British general election were drawn yesterday as the Conservatives sharply criticised chancellor Alistair…

THE BATTLE lines for the British general election were drawn yesterday as the Conservatives sharply criticised chancellor Alistair Darling's £20 billion (€23.5 billion) tax cuts and spending package to take Britain through recession.

As analysts studied the fine print of the Labour government's planned increase in borrowing to a record £118 billion next year, optimistic growth forecasts and tax rises deferred until after the election, shadow chancellor George Osborne accused Mr Darling of pointing "a precision-guided missile at the heart" of a future economic recovery.

Against the backdrop of a global downturn that he again claimed was the essential context of Britain's difficulties, Mr Darling insisted it was right for the government to relax its rules and let borrowing rise to more than double its original forecast to £78 billion this year. Echoing the theme Labour believes will leave the Tories on the defensive, Mr Darling declared: "If we did nothing, we would have a deeper and longer recession that would cost the country more in the longer term."

As expected, Mr Darling cut VAT from 17.5 per cent to 15 per cent in a bid to boost high street spending - the cut will run from next Monday until January 2010, during the second half of which he predicted recovery would begin.

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He also brought forward increases in pensioner and child benefits and confirmed the £120 rebate for basic rate taxpayers introduced after the 10p tax row would be increased to £145 and made permanent. Mr Darling also brought forward a £3 billion capital spending programme from 2010/11 to increase motorway capacity, build new social housing and improve schools and energy efficiency measures.

At an estimated 1 per cent of GDP, the eagerly awaited stimulus was more modest than some experts had suggested might be necessary to kick-start the economy. But Mr Osborne tore into the chancellor, claiming that "£20 billion in giveaways" would be followed by "£40 billion in extra taxes" while the government was set to "double the national debt to one trillion pounds".

Having promised to make clear how he intended to balance the books in the longer term, Mr Darling announced a new higher tax rate for those earning over £150,000 effective from April 2011. He said this would impact only 1 per cent of earners, but all rates of national insurance contributions will also be raised by 0.5 per cent in the same year.

Mr Darling predicted growth for 2009 at between -0.75 per cent and -1.25 per cent, but surprised City experts with his expectation that it would be 1.5 - 2 per cent in 2010 and would continue to grow in subsequent years.

Mr Osborne demanded to know why, if the recession was expected to come to an end halfway through 2010, tax increases were only to be introduced in 2011 - after the last possible date for a general election. "I wonder why he chose those dates?" he declared: "This budget is all about the political cycle and not the economic cycle."

With Labour and the Tories gambling on making the right call for that election, one major pointer for the next government was Mr Darling's acknowledgment that national debt at 57 per cent would not peak possibly until the election after that in 2013/14. Pinning everything on the hope voters will back "fiscal sanity" against Labour's "record borrowing binge", Mr Osborne said the report was confirmation"Labour governments bring this country to the verge of bankruptcy".