The Pre Budget Report was a purely political exercise
Given the current economic conditions, the Chancellor’s 2.5 per cent cut in VAT was like spitting into the wind
To appreciate just how political an exercise today's Pre Budget statement was, consider how Alistair Darling would have fared if he had not had his much-leaked £20 billion stimulus to fall back on.
The hapless Chancellor had to admit that instead of 2.5 per cent growth in 2009 he is now pencilling in minus one per cent. His estimate for borrowing next year was equally dreadful, at nearly £120 billion. That is almost £2,000 for every man, woman and child in the country. Even a few months ago, such a figure would have seemed inconceivable.
No wonder the poor man needed a stimulus. Without it he would have been totally defenceless.
But while the politics of what the Government was trying to do were clear enough, the economics were much less so. Darling's stimulus represents about one per cent of GDP, with the bulk of it concentrated on a 2.5 per cent cut in VAT, starting in December. This will certainly be helpful, but given today's conditions it hardly sounds decisive.
After all, what difference is an extra £2 or so off a £100 dress going to make, when retailers are already offering far bigger discounts and people are still too frightened to spend? Nor will the eye-catching soak-the-bankers super-tax Darling also announced today make much of a difference, when it comes to paying off all the debt he is about to take on.
In economic terms, the objection to this package is not so much that we cannot afford it but that it amounts to little more than spitting in the wind. But then, as so often in this crisis, while Darling may be the Chancellor all the signs are that this afternoon's announcement was really the work of Gordon Brown. It was designed to look good on the day, but in three months' time it is all too likely to look irrelevant. ·
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