Events | 2009.12.12
Having invoked the taxman, the axeman waits for Labour | Andrew Rawnslet
Alistair Darling\'s pre-budget report has won the government no friends and quite a few new enemies, particularly in the media
The silliest thing said about it was that it was political. Well, of course, the pre-budget report was really a pre-election report. This was Labour\'s last serious opportunity before Britain votes to set the terms of the debate about tax and spending with the Tories. It was also Labour\'s best chance to convince the country that it had the more credible approach to sustaining economic recovery and then mopping up the red ink weeping from the public finances. To complain that it was political is as futile as deploring bears for defecating in the woods.
Was it good or bad politics? That is the question the cabinet have been asking themselves since the chancellor sat down on Wednesday. Ministers are getting their answer in an almost universally hostile reaction from markets, the press and the voters. Senior members of the government privately lament that it has been a disastrously missed opportunity, not so much a springboard for the election as a death trap. The person they primarily blame is not the chancellor, but his next-door neighbour.
The PBR was invented in the first place by Gordon Brown for mainly political reasons. He decided to create the event when he was chancellor in order to give himself two opportunities to deliver a budget every year, two occasions to subject his cabinet colleagues to his power, two occasions to infuriate Tony Blair by hiding what he was up to, two occasions to make the same announcements of spending promises, and two occasions to boast that he had ended boom and bust. That was during the sunny days before he presided over the most spectacular bust since the 1930s.
I guess whoever was the equivalent of chancellor of the exchequer to King John had a pretty rough time of it, but few holders of the purse strings since have had to operate in such a bleakly unforgiving context as Alistair Darling. He is a chancellor presiding over a recession which has turned out to be much longer and deeper than the Treasury initially anticipated. He is working for a boss who tried to fire him a few months ago. That boss, moreover, made the mistakes that landed us here. The chancellor had to confirm that the deficit is now at a peacetime record and this has been the most severe contraction certainly since 1945 and probably since 1921. Whoever finds themselves in power after the election, the country contemplates a dismal vista of spending cuts and tax rises. Even the most masterful political magician could not conjure a brilliant electoral strategy out of that miserable material.
In those circumstances, the approach that most commended itself was cool truthfulness about the depth of the hole we are in and a credible account of what Labour would do in the next parliament to climb out of it. Alistair Darling is never going to win first prize in a charisma contest, but he does have a reputation for being relatively straight, quite a prized commodity in an age of such mistrust towards his profession. The principal reason why the politics have gone so horribly wrong for the government is because this PBR so badly failed the credibility test with its three most important audiences.
One audience was the bond markets which fund Britain\'s borrowing. They were looking for reassurance that there is a serious plan to tackle the mammoth deficit over the medium term. It is one of Labour\'s better arguments against the Tories that deep spending cuts should be postponed to avoid the risk of choking off the tentative signs of economic recovery. The important thing for those lending to Britain is not so much the speed of cuts as a plausible account of how the deficit will be paid down once a return to growth has been firmly established. That was missing. The Treasury would have been more specific, but it succumbed to the prime minister\'s insistence that they should keep it vague. So there is very little detail about how Labour would meet its own target – which it plans to enshrine in law – to halve the deficit in four years.
The result has been a slide in the price of gilts and muttering among credit agencies that Britain may lose its AAA rating which would have the calamitous effect of making the deficit even more expensive to finance. A good measure of how the world regards the financial soundness of the UK is the price lenders have to pay to insure against the British government doing a Dubai and defaulting on its debts. The insurance premium for lending to Britain is now higher than that charged for lending to Slovakia.
This failure to be more candid let the Tories off the hook. Their approach is also characterised by a lot of dodgy numbers, vague assurances and hidden intentions. The fuzziness of Labour\'s plans means there is reduced pressure on the Conservatives to specify how and where they would cut faster and deeper.
The next audience was the media. Given that the chancellor was playing such an appalling hand, he was never going to get glowing press notices, but senior members of the cabinet have been taken aback by the almost universal ferocity of the reaction from the press across the spectrum. "Darling just screwed more people than Tiger Woods," cackled the Sun , an echo of the "Now we\'ve all been screwed by the cabinet" headline that the tabloid ran about Black Wednesday when it destroyed Tory economic credibility in 1992. Well, they already knew that the Sun had gone down on them. The Guardian and the Daily Mail do not agree on much, but they were alike in depicting this as squeezing not just the rich, but soaking the majority of the population.
The most politically negative component was the increase in National Insurance contributions which will hit anyone earning £20,000 a year or more. That tax rise on middle Britain could have been avoided, at least for the moment, had the chancellor not promised some spending increases in 2011 and 2012. This was because Gordon Brown still thinks he can fight the next election on the basis of "Labour investment" versus "Tory cuts". He is addicted to this strategy because it worked so well against the Conservatives in 2001 and 2005. But many of his senior colleagues are highly sceptical that the election of 2010 can be successfully fought on that dividing line. Gordon Brown still wants to wage the last war, perhaps because he is not capable of fighting any other.
Over the summer, the chancellor, with Peter Mandelson and Jack Straw as important allies, thought he had dragged the prime minister into a more defensible position. But then, like an old recidivist, Gordon Brown started sliding back into his old habits, spraying around more unfunded spending promises in his party conference speech.
He has been egged on by Ed Balls, partly because the schools secretary is also obsessed with that old dividing line, partly because he wanted to be able to boast that he had won more money for his department. I am reliably told that the wrangling between the schools secretary and the chancellor went on into the early hours of the morning on the day of the PBR itself. The result was that some of the extra spending beaten out of Mr Darling by Mr Balls did not get into the document because it was already printed. Yvette Cooper, wife of Mr Balls and work and pensions secretary, was also refusing to settle right up to the wire – and beyond it. They may celebrate by treating themselves to His and Hers boxing gloves, but some colleagues think their brinkmanship was outrageous.
The disbelieved suggestion that they can carry on spending on health, education and the police as if the boom had never bust has won the government no credit while the tax hike has attracted almost total damnation. It has also done another favour to the Tories. They can present themselves as the party most interested in helping "the many", which is supposed to be Labour\'s tune. George Osborne has been given the opportunity to play down his inheritance tax cuts for "the few" by making a priority of pledging to reverse Labour\'s tax increase on "the many".
Which brings us to the final and most important audience: the voters. Even the fuzziness of the figures and the chancellor\'s genius for inducing drowsiness in an audience could not mask the brutal truth: the incomes of most voters face a severe squeeze in the years ahead. The deficit is far too huge to be dealt with simply by dipping deeper into the pockets of the very wealthy. One-off taxes on bankers\' bonuses aren\'t going to do the trick. There are just not enough of the rich to provide the money that is needed. As Denis Healey remarked when he was Labour chancellor grappling with the fiscal crisis of the 1970s, governments that want to raise serious sums can only do so by putting up taxes on the moderately affluent and the average earner.
The other option is to make deeply painful spending cuts. For Britain, both are now in prospect. The axeman and the taxman are waiting at the door. The real budget will be the emergency one that someone introduces shortly after Britain has been to the polls next spring. The incredibility of this PBR makes it even more likely that that person will be George Osborne.
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http://www.guardian.co.uk/commentisfree/[...]-rawnsley-budget-brown-cameron
