Darling: For my next trick...

Ahead of this afternoon's pre-Budget report, what fiscal magic does the Chancellor have up his sleeve?

Last Updated: 31 Aug 2010

Talk this morning has been dominated by the rumoured 2.5% cut in VAT, to be paid for in part by that other headline-grabber: a tax rate of 45% on earnings over £150k.

The income tax change is noteworthy more as a political statement - marking a move back towards traditional Labour values - than anything likely to raise huge sums of money. Not only would it apply to a relatively small sector of society, but those it does affect are rich enough to employ people to help them get around paying. Still, there will be those scaremongering about Labour returning to the dark days of the 1970s, when simply wearing a suit and carrying an umbrella seemed enough to get stung.

Many will welcome the VAT cut as a way to stimulate consumer spending, but will it be enough? It's certainly not the most creative way to solve the problem, but it will probably be effective in encouraging people to throw their money about a bit and get the wheels turning again.  

Yet critics of Darling are already pointing to the funding shortfall it creates: billions will have to be borrowed - and paid back in future - to plug the gap now. The government may be right in saying that the best way out of a deep recession is to nail it early. Trouble is, we've all seen where a tendency towards heavy borrowing has got us.  

Of course, we should remember that Darling's speech has yet to be made. In previous times, we'd have been clueless about the Treasury's big plans, until the dispatch box was actually whipped out. In 1947, Chancellor Hugh Dalton was forced to resign from the Labour government after he let slip a few choice bits of his budget speech to a reporter from the Evening Standard. These days, it's all about carefully stage-managed build-up.

What's more, by guiding the focus towards points A and B, it often gives greater chance of point C getting past undetected. We're agog at the queen of hearts; meanwhile our watch has been stolen. With Gordon Brown, the devil tends to be in the detail. Watch out for the small print this afternoon.

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