LONDON BRIEFING:EVEN BEFORE Alistair Darling utters a word, it has been dubbed the "budget from hell". And we'll find out later today just how hot things get for Britain's luckless chancellor as he attempts to put a brave face on spiralling public debt, slashed growth forecasts, spending cuts and tax rises.
The day will not start well for Darling. Official data this morning will show the mounting impact of the recession on employment, and data is also due on the dire state of Britain’s public finances.
Neither will make pleasant reading, but the full toll of the public debt mountain will be laid bare by the chancellor in his budget speech, which kicks off at 12.30pm.
Darling is widely expected to admit that public-sector borrowing will spiral to about £160 billion (€181 billion) in 2009/2010 and could climb to an eyewatering £175 billion or more the following year. This is way ahead of the forecasts contained in last November’s pre-budget report, which put the figure for this year at what was then an alarming £118 billion, falling to £105 billion next year.
Growth forecasts will be cut, with Darling expected to indicate that the economy will contract by 3 per cent or more this year. That compares with his pre-budget report figure for a contraction of between 0.75 per cent and 1.25 per cent.
On spending, cuts of as much as £15 billion are on the cards, but there should be some measures to help the unemployed back into work, particularly the under-25s.
There should be some help, too, for the moribund housing market, with a £1 billion package expected to include more council and social housing construction and an extension of the stamp-duty holiday for properties that cost less than £175,000.
With Britain in the grip of the worst recession since the second World War, crowd pleasers will be thin on the ground. There will be a raft of “green” initiatives, while measures to help the ailing car industry are also expected, although manufacturers fear so-called “cash for clunkers” incentives to boost sales of new cars will be less generous than schemes elsewhere in Europe.
As he put the finishing touches to his budget this week, there was little comfort for the chancellor as his earlier calculations on top-rate tax, unveiled last year, were called into question by the Institute for Fiscal Studies (IFS).
The independent think tank has rubbished Treasury projections that a new top-rate tax of 45p in the pound, to be imposed from April 2011 on those earning more than £150,000 a year, would bring a £1.6 billion boost to government coffers. The think tank claims that not only will the new tax fail to raise extra cash but it could actually cost the Treasury money.
Economists at the IFS argue that the new tax on the rich will force some high earners to leave the country, while others will be spurred into searching for loopholes or other legal avoidance measures. Some might simply decide to work less.
The tax will affect only an elite group – the top 1 per cent of British earners – and is part of a £3 billion crackdown on high earners. However, while UK prime minister Gordon Brown likes the image of a Labour government squeezing the rich, he would, according to the IFS, be better off raising the current top 40 per cent tax rate to 43 per cent for a far wider group: those earning £44,000 and above. But that would catch the top 10 per cent of earners – rather too many for comfort with an election little more than a year away.
There was some small comfort for Darling in the IFS calculations, but only in that they are equally embarrassing for opposition leader David Cameron, who has already put his neck out and said he will retain the new 45p tax rate as part of his plan to chip away at the nation’s debt mountain.
Darling stepped up to head the Treasury just weeks before the global financial crisis erupted in 2007 and has become accustomed to delivering grim news. That won’t make it any easier, however, and he must look back wistfully to the halcyon days of a couple of years ago, when his boss, Gordon Brown, was chancellor.
In his final budget in 2007, Brown opened his speech with optimistic talk of “the longest period of economic stability and sustained growth in our country’s history”. Britain, he promised, “will never return to the old boom and bust”.
Fiona Walsh writes for the Guardiannewspaper in London
