Alistair Darling delivered the pre-Budget report today and promised to protect health, education and the police while imposing deep cuts in other areas of public spending to reassure financial markets.
“The choices are between going for growth or putting the recovery at risk,” said the Chancellor. “To reduce the deficit while protecting front-line services or cuts which put these services in danger. Choices between two competing visions. This Pre-Budget Report is about building a fairer society and securing opportunity for all.”
The widely-trailed banker-bashing was confirmed by the Chancellor as he outlined a one-off levy of 50 per cent on any individual bonus above £25,000, to be paid by the bank. Anti-avoidance measures would be introduced with immediate effect. Whether the City can find ways around the measure, or simply defer bonuses for one year, remains to be seen. But the main purpose was clearly to assuage some of the public anger at bank bonuses and Darling will hope his plan will go some way towards doing that.
Darling promised to safeguard frontline services of health and education but accepted that pain will be felt elsewhere to achieve maintain that support. The difficult measures would include a 1% public sector pay freeze between 2011 and 2013 and further deep cuts across the public sector. And the Chancellor linked the commitment to health and education spending to a further 0.5% increase on National Insurance contributions in 2011, coming on top of a planned 0.5% rise in April 2010.
The Chancellor confirmed that VAT would return to 17.5% in January 2010, though a potential increase to 20% did not materialise. He also announced that a scrappage scheme for new household boilers would be introduced along the lines of the car scrappage scheme, stimulating spend in that area while improving energy efficiency.
Supporting small businesses was a focus of the speech, with corporation tax for SMEs left unchanged for 2010-11. Empty property relief was also extended for 2010-11, with empty commercial properties with a rateable value below £18,000 exempt from business rates – a measure that covers 70% of all empty properties. The Chancellor also promised to continue to push banks to provide much-needed credit to SMEs.
The issue of Government debt is toxic for Labour and the Chancellor was forced to outline a dramatic increase in Government borrowing for the coming years. To loud barracking from the opposition benches, Darling claimed that the UK’s borrowing put it near to the average of international comparators. But the glum faces behind the Chancellor showed that Labour MPs fear this issue could cause them severe damage at the polls.
Darling was able to announce some positive measures and promised to raise pensions from next year, despite a negative RPI, and also pledged to continue some schemes to help the young into jobs or training. There was also a pledge to introduce a 10 per cent corporation tax rate on income which stems from patents in the UK to boost innovation in the biotech industry. And to the amusement of the Commons he also found the money to reduce bingo tax from 25% to 20%.
Darling closed his speech with an appeal to the public to trust the choice that the Government was making, further establishing the pre-election dividing lines. “The choice facing the country is between securing recovery or wrecking it,” he said. “Between investment to build a fair society where all prosper and a divided society that favours the wealthy few. A choice between ambition driven by the values of fairness and opportunity, or austerity driven by an out-dated dogma.”
Only time will tell whether the country believe Darling, though the bottom line remains that for the vast majority of people the PBR offers the prospect of short- to mid-term pain. And, to no great surprise, that doesn’t often lead to short- or mid-term political success.