A gonzo budget that business must finance
Perhaps Britain’s businesses should add up their spending plans and publish a corporate-sector budget. It is commerce that creates wealth and government that spends it and Alistair Darling’s latest budget depends totally on business reviving the economy.
Yet despite doubling short-term capital allowances and a tweak to corporate taxes, the April 2009 budget does little to help business create the wealth to get the public sector out of its hole. Business, however, will be expected to find the jobs to reduce unemployment.
That said, business did well from the boom that led to the bust and the banking sector that fuelled it was in the private sector until it had to be rescued at high cost. That cost now has to be paid: Darling has to raise the money from somewhere and whoever pays will squeal.
Chancellors inevitably adopt the Robin Hood principle of taxing the rich. It is not political philosophy, mere reality: the poor have no money. So the 350,000 people earning over £150,000 will pay an extra 10p income tax and lose half their pension relief while the 750,000 earning over £100,000 lose their allowances.
That is not enough to make high-earners emigrate en masse but it is not enough to rescue the country’s finances either. And nor it is enough to save Labour’s electoral chances: the tax rises apply to less than 2 per cent of the population (most of whom probably vote Tory anyway) but the increases have been reported as Labour breaking promises rather than the party saving the majority from paying more.
So Labour loses either way and Darling must have been tempted to go for a gonzo budget, promising the earth and making heroic assumptions of growth in the belief he won’t be around after mid-2010 to pick up the pieces. He will get the blame anyway but the budget - with its forecast of 3.5 per cent growth from 2011, huge borrowing requirements and massive funding gaps – will become a problem for the Tories.
The Tories will have to rein back public spending to meet the private sector’s ability to finance it. Darling it right in saying spending cuts now would exacerbate the slump, but he must put future cuts in place. The public sector cannot be immune from recession.
When the private sector pulls Britain out of the slump, unaided by government, it must be rewarded by allowing the state sector to shrink. It is only by adding together all those corporate budgets that Darling’s black hole can be filled.
