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Dan Lewis: Whatever happens in this Budget, the Tories are well-placed for a recovery
WHEN Alistair Darling steps up to the dispatch box on Wednesday afternoon, his job will be harder than that facing any Chancellor since Dennis Healey in 1976.
No-one disputes that Britain's private sector is deep in recession and that small businesses are being hit harder than most. But thanks to years of excess by Darling's mentor, Gordon Brown, the public finances are in a dire state and he has limited room for manoeuvre. Yet there are concrete steps that could be made to lessen the pain and with an election at most no more than a year away, the political consequences of his actions are huge.
Clearly, no Chancellor in his right mind would want to start from here. In the midst of a global downturn, it has been forecast that at least one million more Brits will lose their jobs this year and, along with their fortunes, Government tax revenues will dive.
That's why there is a real chance that the Government may not find enough gilts investors to pay for its projected 170bn of borrowing. This may indeed require a humiliating bailout from the IMF, just like in 1976.
So for Darling to avoid this calamity, keeping people in work ought to be the priority. One measure that could do this would be to reduce taxes on employment. Regrettably, late last year, the Government announced plans to do just the opposite – increasing the rate of national insurance contributions from April 2011. For all our sakes, Darling should reverse this decision and the Tories are right to think so too.
Small, low-skilled businesses such as coffee shops, caterers and labourers, which are currently struggling to make payroll, are very sensitive to staff costs. They could do with a
permanent rise in the earnings threshold from the current 10,128 a year to 15,000. For a ruling party that is socialist in its origins, keeping the working classes in work shouldn't be a tough decision to make, but somehow it is.
Still, the increasing inevitability of Tory victory means that
many eyes will be focused more on the Conservative response and their forthcoming plans than anything Darling thinks he could do.
And here the Tories, although moving in the right direction, are still wanting. Timing is everything in politics and with a legacy in mind, George Osborne has the potential to be one of the great Chancellors of history. He will inherit a faltering economy ripe for reform and the certain knowledge that, for the first time in many years, public opinion will be with him.
He can also call upon a wide range of earnest, dedicated centre-right think tanks and campaign groups that, in the last decade, have produced whole libraries full of publications and research on reforming the public sector and cutting its expenditure. And yet unlike Vince Cable – consistently available and quick to reply – this Shadow Chancellor is
most reluctant to engage with them and build the alliances
that he will need when public enthusiasm inevitably fades.
It's not too late for George Osborne to launch a charm offensive with this constituency and he must start now. At the very least, the Conservatives must make clear that there will be no new tax increases from where we are now and that privatisation to raise tax receipts as well as tackling quangocracy, local government and regulatory reform are firmly on the agenda.
The truth is that most Britons want some tax-funded public services, but they are appalled by the value for money they get. Take for example, the absolute fiasco of paying Ed Richards, head of Ofcom, nearly 420,000 a year and then watching the regulator fine the BBC – and by extension the licence fee payer – 150,000 for 6m-a-year Jonathan Ross' sick outburst with Russell Brand. Why would any taxpayer want to pay Richards or Ross such vast salaries when their actions only end up increasing their taxes further?
So much for the Tories and the public sector. I'm just amazed at how no one has paid any attention to the market-timing skills of Tony Blair, erstwhile First Lord of the Treasury. Leaving office in June 2007 just before the global economy went south suggests to me that, in another life, he would have been a brilliant hedge fund manager.
As I blogged nearly a year ago, Blair's greatest mistake
was not to sack Gordon Brown, early on, rendering him impotent and yet more dour, isolated and grumpy on the backbenches.
Blair's failure to take an interest in economics and his unwarranted deference to bully-boy Brown will scar the Labour Party for many years to come. For unlike the EU debate in the Tory party, the Blair/Brown divide is more personal than ideological.
Surely that's why Labour, whatever happens in this
budget, can reasonably expect to be out of power for as many as three terms.
Dan Lewis is research director of the Economic Research Council
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Friday 10 February 2012
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