Tuesday, November 25, 2008
The measures announced yesterday won't make a great deal of difference to the crisis. To be clear, the pre-budget report at least had the virtue of not simply offering a moderate version of the Tory policy, which is to cut public spending in order to find tax cuts for businesses and higher income earners. It crossed a symbolic barrier by raising taxes on the top 2% of income earners, although that will only bring in £2bn per annum. When the Chancellor announced this, he used a turn of phrase that the poor man had obviously purloined from a Lenin's Tomb post some weeks back, so I want it remembered that I am personally responsible for the 'death of New Labour'. Me and the credit crunch. Darling also threw a few quid the way of people on 'lower incomes', which is welcome. The VAT cut at least means that you might pay a little bit less for a burger on the way to work, if you've still got a job. The overall effect, as this graphic suggests, is to redistribute wealth from the rich to the poor. The government has signalled a slight shift to the left, which is better than the habitual lurch to the right. Yet, despite the overheated imaginations of centre-left plaudits and Tory carpers, this was a moderate and inadequate response to a massive economic crisis. Given the expected slump in consumer spending, shops are offering price cuts of anything between 20% and 70% (one marvels at the inbuilt profit margin that they must have to be able to afford such cuts). A 2.5% cut in VAT will hardly make a dent in the current circumstances. Welcome as the tax changes are, it looks as if the government is depending on a revival in bank lending to enable people to really spend, but that is neither happening nor will people necessarily want to borrow more in this climate. The Bank of England is calling for another capital injection for banks to stimulate such lending - so we should throw billions at the banks in the vain hope that they will use it to help working class consumers rather than increase bonuses to the directors and management. In truth, the pre-budget report will surely be supplemented by future temporary cash boosts, resulting in further conservative cat-calls about government waste and high taxes.
But the Tories are, happily enough, in a mess over this crisis, and George Osborne's current incarnation as The Grinch Who Stole Christmas isn't going to alleviate the mess. It has eroded the poll lead that Brown and Darling handed them last year on a big silver platter, and it has widened Labour's lead on 'economic competence'. And the Tories have incurred the wrath of most of the large and small business organisations over their economic recovery plan, so even their core constituency doesn't trust them. For their part, retailers seem to think the VAT cut is a move in the right direction, but that the government should go further. So the Tories can't even carry the High Street. I daresay it won't be long before they are back below 40% in the polls.
Another matter of some urgency is that if Labour wins the next election, Brown is planning a massive contraction of public spending in 2011, when the polyannas of Her Majesty's Treasury supposedly conclude that recovery will begin. That means the public sector pay cuts we have already seen would be dwarved, as would the massive job cuts in the civil service. One alternative fund-raising scheme would be to cancel all PFI projects with immediate effect and to apply a windfall levy to the hucksters who have made off with billions of pounds of public money while providing a miserably poor service. Also, oil prices are falling at the moment, but the energy giants could still pay a lot more tax than they do, and a windfall tax would pay for a sizeable stimulus here and now. Or the government could always break another taboo by increasing corporation tax and shutting down the tax havens. It could also reverse the recent cuts to inheritance tax. The severity of the crisis may still force some such measures, but inevitably it will be too little, much too late.