Dr Darling will hold his syringe up to the light today, give it a squeeze or two, then plunge the needle into the patient. The ailing British economy is in urgent need of treatment. The Chancellor and Prime Minister have written the prescription but the rest of us will have to wait until Alistair Darling's pre-Budget report (PBR) to find out what the medicine entails. There has been no shortage of leaks about possible measures to mitigate the impact of recession and restore the economy to rude health.
Dr Darling will hold his syringe up to the light today, give it a squeeze or two, then plunge the needle into the patient. The ailing British economy is in urgent need of treatment. The Chancellor and Prime Minister have written the prescription but the rest of us will have to wait until Alistair Darling's pre-Budget report (PBR) to find out what the medicine entails. There has been no shortage of leaks about possible measures to mitigate the impact of recession and restore the economy to rude health.
These include cutting VAT by two and a half percentage points to 15%; increasing tax credits or personal tax thresholds; a further freeze on fuel duty and postponing the changes in vehicle excise duty; retaining the higher ceiling for stamp duty on property; and cutting taxes for business. Each would come at a cost to the Treasury in reduced tax receipts, with shortfalls being met by increased borrowing. Depending on how Keynesian Mr Darling can afford to be, borrowing will rise to fund public works as a means of stimulating the economy. Borrowing is already approaching the £70bn mark in the present financial year and could perhaps rise to a dizzying £120bn in 2010, or 8% of national income.
So long, Prudence. Gordon Brown, from whom she was formerly inseparable, insisted yesterday that failing to help business and families now would cause more damage later. He described the course of treatment as temporary, timely and targeted. But it involves risk. The purpose of tax cuts is to put money in people's pockets that they then spend to increase consumption, boost confidence and kick-start the economy. The outlook is gloomy and many people fear for their jobs. What if they decide to save the extra cash for a rainy day rather than do the decent thing by Dr Darling? Also, it is not just British industry that benefits when people spend. Many of the goods we buy are imported and the gain goes to other countries, too. So the impact could be limited and the upturn in the economy delayed to the point where national debt rises to dangerous levels.
A great deal is riding on this PBR, politically as well as economically. If the measures are modest (which seems unlikely), there will be little effect on the economy. If the gamble is too great, anxiety about the sustainability of high borrowings will grow, as has already been evident to an extent in the decline of the pound. Mr Brown is correct when he says that doing nothing is not an option. It was he, as Chancellor, who introduced the PBR in 1997 to bring predictability and stability to government and greater certainty for business and the markets.
How times have changed. Today's PBR will be more of an emergency budget framed to respond to the worst economic crisis facing Britain and the world in some 60 years (pace Mr Darling). If the package of inducements and spending is successful, the government should be in a position to reduce borrowing and eat into debt before the burden becomes too great.
Unusually for a government led by a former Chancellor who, at the Treasury, raised taxes by stealth, no-one has been left in any doubt about the price to be paid for the measures to be announced today. When the Chancellor can take back in tax hikes that which is about to be given away today, and whether it will be a Labour government running the country when that happens (or a Conservative administration hoping to make up the deficit by big public spending cuts) will depend largely on the outcome of today's PBR.
