Plenty of bad news for UK plc in today’s Budget, although not much of it came as a massive surprise: Chancellor Alistair Darling confirmed the severity of the current recession and the disastrous state of the public finances, outlined plans to cut public spending in the coming years and introduced this daft car scrappage scheme. But the big headline-grabbing measure was a hike in the top rate of income tax – those earning over £150,000 will pay 50% on their earnings from April, as Labour decided to tear up the promise it made to the City back in 1997. Oh, and if you feel like driving to a pub after work to drown your sorrows, don’t bother – he’s also putting up the duty on fuel, booze and cigarettes…
Let’s start with the public finances: Darling confirmed borrowing would soar to £175bn this year, before falling to £173bn the year after (though given these figures always have a margin for error of about £10bn at the best of times, we wouldn’t put too much faith in this prediction). According to David Cameron, that means the Government is borrowing more in the next two years than every Government in the last 300 years put together. It also means the Treasury has to flog at least £220bn (and possibly as much as £260bn) of gilts this year, which is massively more than expected (Robert 'Jeremiah' Peston is already warning it could affect the UK’s AAA credit rating). Meanwhile the national debt will soar to a frightening 79% of GDP over the next five years. Ouch.
The Government says things will improve from 2011 – but it’s assuming that after a contraction of 3.5% this year, and growth of 1.25% the year after, the economy will rebound at 3.5% in 2011. That sounds pretty optimistic. And Darling’s public spending squeeze won’t even kick in until then: from 2011 there’s going to be a big ‘efficiency’ drive to save about £9bn (which makes you worry how badly run they are at the moment). He suggested that unlike the Tories, he was against spending cuts now – but he’s only stored them up for later, in practice.
And then there’s the income tax hike, a bit of political grandstanding that would make Denis Healey proud. The Chancellor’s strategy today was clear: announce measures in support of children, the young unemployed, pensioners and other voter-friendly groups, while claiming to ask the rich for a bigger contribution. But regardless of what you think about the fairness of this – and some would argue that hammering some of Britain’s most talented businesspeople and top wealth-creators isn’t very progressive – the question is whether it will actually raise much money. Even the Government is only predicting extra revenues of £1bn, and that’s assuming that most of these people don’t leave the country or work out ways around it (either way it should be a bonanza for tax accountants).
Car makers, housebuilders and green technology companies may have had something to cheer about today, as they stand to benefit from various (small) stimulus packages. For the rest of UK plc – including small businesses, who were largely ignored, as far as we could see – the picture was pretty glum...
In today's bulletin:
Darling hikes top tax rate as Government borrowing soars
Unemployment and borrowing soars - but IMF backs down
Editor's blog: Hello, Darling, want a new motor?
Diageo champagne on ice as LVMH denies Moet sale
Quadruple your money - give it to a teenager