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Jonathan Reed: Stakes are high for Chancellor who can make or break his party's fortunes
A DECADE ago, it was brought in as an autumn progress report on the state of the economy and little more than a catch-up for MPs, but this year the pre-Budget report will be so much more than that.
To all intents, it will be a Budget in its own right – and arguably the most important one since Labour came to power in 1997.
After a decade of good times, the economy is perched perilously on the brink of a deep and lasting recession and the measures which Chancellor Alistair Darling unveils will have a major impact on whether the doomsday predictions come true.
As he battles this weekend over the scale of tax cuts with his next-door neighbour, the Prime Minister, Mr Darling will be fully aware just
how much is resting on the statement he will make in a packed and partisan Commons Chamber at 3.30pm on Monday.
The stakes are high not only economically – influencing
whether the recession is a short, sharp shock or a deeper depression – but politically, too. Get it right, and it could help earn Labour a landmark fourth term in office, a seemingly impossible concept just a few weeks ago. Get it wrong, and it may not matter that the Tories have too often been seen to be floundering when charged with coming up with with a coherent alternative economic plan to get us out of this mess.
For Mr Darling, Monday will be uncomfortable. This time last year, he was downgrading economic predictions but still expecting
growth of at least two per cent this year, yet we are now almost certainly in the second successive quarter of negative growth. Just how gloomy will the outlook be now? And public borrowing figures are expected to be eye-watering.
At least he will have the backing of Labour backbenchers reinvigorated by the party's apparent resurgence in the polls – even prompting talk of a spring election – and delighted by the clear blue water created by David Cameron's belated abandonment of the Tory commitment to match Labour's spending plans this week. To many Labour MPs, this is a sign that this is still the same old "nasty" Tory Party, although polls over the past year suggest the public doesn't necessarily share that view.
Amid all the speculation about what might happen on Monday, the one thing that has become increasingly apparent is that tax cuts are on the way – even if only for the short term. Until a few weeks ago, mention of a "fiscal stimulus" would have drawn blank looks from anyone save an economist. But among the many consequences of this economic downturn so far is an expanded national vocabulary to which "fiscal stimulus" can be added to the likes of the "credit crunch" in common language.
The big unknown is just how big the package will be. Between 15bn and 30bn is the best current guess. Reports suggest Gordon Brown favours the higher end and Mr Darling something more moderate. Business and the housing market are in need of urgent help, while low earners are also a likely target – especially with the 10p tax fiasco requiring resolution – but there is also a need to keep on board the middle-classes who are bearing the brunt of huge financial services
job losses.
But can Mr Darling resist the pressure from next door and produce a package which contains genuine help without being reckless?
His challenge is to produce targeted tax cuts which will make a real difference to families – increasing the tax-free allowance could be simple and tempting, if bold – and businesses, along with less expensive but practical measures to help people stay in their homes and businesses to remain afloat, such as more breathing space for mortgage arrears and quicker payment of bills by the
public sector.
The reality is that, armed with the backing of the world's major powers, the argument for tax cuts is being won by Labour. Yet the Tories have good reason to warn that to simply borrow billions more is dangerous.
Rather than adding to debt, Mr Darling needs to offer savings as well if he can claim to be responsible, especially as Treasury receipts from most taxes plummet. The Government's lukewarm response to the Tory spending announcement – not accusing the Tories of slashing schools and hospital spending – suggests that while big infrastructure projects are likely to be fastforwarded as a stimulus, there may yet be a willingness to offer some savings as well.
More efficiencies in councils and Whitehall have already been promised, but bigger savings could be found on major projects like ID cards, whose merit is still seriously questioned, or from quangos, which could be trimmed.
If Mr Darling can produce a more balanced package, the Tories are left in an awkward position. "It's a tax con" will be the response, along with screams of "maxing out" the national credit card, but is opposing a move to give people more money in their pocket really an option?
If the Tories are to make the political weather again, Mr Cameron and Shadow Chancellor George Osborne need to produce their own comprehensive package. Businesses were underwhelmed by their promise of taxbreaks for businesses taking people off the dole and are screaming for clear tax cuts. Families would welcome Tory promises to take most first-time buyers out of stamp duty and a possible two-year council tax freeze, but if Labour can offer a cut in income tax, it hardly competes.
Without more positive action, the Tories may be left to rely on the public buying into fears of tax rises to come – and that is far from certain if people are more concerned about cash to spend or save now.
When Alistair Darling stands up on Monday afternoon, much of the nation will be watching intently. Traders will be soaking up every word and the financial markets will be watched for any twitch. Much is expected. Never has more rested on a pre-Budget report.
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Saturday 26 May 2012
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