Wednesday, November 26, 2008

Pre Budget Report

There were some good bits in the Pre Budget report (as well as the pre-announced things, bringing forward increases in child benefits and other benefits from April to January was definitely the right thing to do), and it was a million times better than the increasingly desperate and pathetic "alternative" which the Tories are offering up.

But I think it is no coincidence that one of the features and weaknesses of the Pre Budget Report is that the only people who got a say about what went in it were a small number of clever technocrats. That's one of the reasons why I think it ended up being less good overall than could have been hoped and expected.

It might be that there wasn't actually much else that could have been done economically, but politically the government could have been bolder. One stat from the YouGov survey which highlights this. 60% of people supported the cut in VAT, no surprise that a tax cut benefiting everyone who buys stuff gets majority support. But 72% backed the increase in tax for those earning over £150,000. When there are significantly more people supporting a tax rise than a £12bn tax cut, politicians ought to sit up and take note.

The debate amongst most politicians and journalists seems still to be based on the assumption that eventually things will get back to how they used to be, and the question is how to make this happen in the minimal amount of time and with the minimum amount of bother to people (or in as Andrew Lansley from the Tories might put it, after a period where people get to enjoy the benefits of mass unemployment). Returning to how things used to be shouldn't be what we're aiming for, and would be impossible even if it were. It's like a search for a mixture of the undesirable and the unobtainable.

With the way the economic situation is developing, it is entirely possible that the Budget itself will bear very little relation to what was announced on Monday. But just to give an idea about the scale of the missed opportunity, consider this:

We now know that it would have been possible by 2010 for our government to have halved the number of children living in poverty, just as it promised to do more than a decade earlier, and even despite the worst economic crisis since the 1930s. This would have directly improved the lives of millions, helped the economy, and been as eloquent a statement of Labour's values and priorities as it is possible to imagine.

And instead? This week our leaders chose to cut different taxes, making sure that they'll fail to meet their promise on reducing child poverty, and to give bureaucrats new powers to cut the benefits of lone parents if they don't do what the regulations tell them to.

2 Comments:

At 12:27 pm , Blogger Robert said...

What can you say labours welfare reforms latch key kids, sick disabled parents who cannot work living on JSA at £60. we are going backwards.

 
At 12:18 pm , Anonymous a.h. said...

I'm in sympathy with the arguments made here but it should be noted that the cut in VAT is a temporary one only, to reassure the bond markets that government borrowing is not getting out of control, which would push up the interest rates required to sell government bonds and thus interest rates on all other assets.

A boost to the incomes of the low paid would have given a greater economic stimulus, but it would have been politically impossible for this boost to have only been a 'temporary' one.

This probably isn't the last fiscal stimulus package we will see in this recession, so there is still hope. To win the case for an anti-poverty budget the left would have to argue:

a) that the bond market reaction is not likely to be as negative as the government fears (where else will they put their money at the present time?) and that if it is there is currently little inflation risk from the central bank being instructed to buy the bonds that the private sector won't (i.e. printing money)

and/or

b)that further tax increases (presumably focused again towards the rich) are required

Although b is funded from tax not borrowing it would still count as a stimulus as it transfers to consumers with a higher likelihood of spending.

 

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