Wednesday, March 24, 2010
Not flash, not Gordon
Posted by David Smith at 03:30 PM
Category: Thoughts and responses

A first response to the budget.

This may have been the first authentic Alistair Darling budget and, depending what happens over the next few weeks, perhaps the last. It wasn’t flash, and it clearly wasn’t Gordon’s.

What did he seek to do? Three things. To demonstrate that the government, as he kept saying, made “the right calls” during the crisis and recession and are still doing so. So the contrast between unemployment in this recession and those of the 1980s and 1990s was a recurring theme. So was the fact that, had things been done differently, and spending cuts introduced earlier, public borrowing would have been higher, not lower.

His second theme was one of “enabling” government. Ronald Reagan is supposed to have said that the most terrifying words in the English language were: “I’m from the government and I’m here to help.” Darling, as he set out in his Callaghan lecture a few months ago, does not believe this. Government helped in the recession and will help, with pump-priming and other measures, during the recovery.

So the chancellor, in his best Edinburgh lawyer style, gave us an array of, low-key, low-cost (and in some cases no cost) micro measures. Seldom has so much of a budget speech been given over to announcements that, in Treasury terms, amount to no more than small change.

Small businesses, however, liked quite a lot of it, including cuts in business rates, more generous investment allowances and an increase in the ceiling for entrepreneurs’ relief. That was quite astute. Most people in Britain work for small firms. Any swing in the small business vote back to Labour from his £2.5 billion “growth package”, represents more bang for the buck than more obvious pre-election sweeteners would have done. The other clear message, given the long lead time for some of these measures, is that a Labour government intends to be around to implement them.

The mammoth in the room is, of course, his third theme, the budget deficit. To unveil a £167 billion deficit as a minor political triumph just shows how dreadful Britain’s public finances had become. At least he resisted pressure to use that £11 billion for extra public spending, which would have been a grave error.

An undershoot is better than an overshoot. The Treasury has won a minor battle with independent forecasters, many of whom even a few weeks ago were predicting a borrowing overshoot. The consensus has also come round to the Treasury view on growth in 2010; 1% to 1.5%.

It is over later years that the debate is still raging. The recovery, in Darling’s view, is a delicate little flower that has to be carefully nurtured. Then, when it starts flowering, there is no stopping it. So, 3% to 3.5% growth in 2011 (fractionally down on his earlier optimism) and 3.25% to 3.75% in 2012. Past recoveries have been strong but rarely have they been more essential to achieve the chancellor’s ambitious goals for repairing the public finances; more than halving the deficit over four years..

Can it happen? Yes. Will it happen? A genuinely cautious chancellor would have slotted in growth forecasts for 2.5% a year from 2010 onwards and taken the benefit it things turned out better, rather than bet the ranch on such an optimistic prospect. Perhaps, however, he just thinks that will be somebody else’s problem.