A good budget isn’t enough to balance the books
Alistair Darling must have been tempted to present a budget so full of promises it set an impossible trap for an incoming Conservative government. In fact the chancellor has promised so much Labour is in danger of winning the general election and being caught in its own trap.
If he could transfer some of his new-found confidence to business and consumers his improved forecasts might even turn out even better.
But perhaps the message the electorate should take away is that Labour is better at solving crises than averting them. Intervention on an unprecedented scale – from nationalising banks to subsidising car sales – has succeeded in restoring growth and keeping unemployment below worst expectations.
We’ll never know how the economy would have looked without that Keynesian boost – or whether the Conservatives really would have sat on the sidelines doing nothing – but it’s a fair bet it would be far worse.
Yet the budget speech is an election manifesto with many measures lasting little beyond polling day. The 20,000 extra student places (mainly science) is as short-term as the further year of enhanced winter heating allowances, the one-year cut in business rates or the revival or the recently ended stamp-duty holiday for first-time home buyers.
There may be economic reasons to delay public spending cuts there are political ones too – and moving civil servants out of London is not the same as axing them. Relocation savings too easily turn into extra costs.
The nationalised banks’ promise to double their lending to small business is hollow when they missed last year’s targets and don’t seriously expect the Credit Adjudication Service to force banks to lend against their will.
Green investment banks, university enterprise funds and help for computer games firms, like the kind words for SMEs, are linked more to the election than the economy.
When the chancellor spoke about choices that “shape our economy for decades to come” he needed set out a long-term budget rather than short-term vote-winners. Halving the budget deficit in four years is heroic but it still leaves a massive gap.
Darling can boast of plans to reduce Britain’s structural deficit from 8.4 to 2.5 per cent of gross domestic product but that still means we’re spending more than we earn.
It’ll take a lot of heavily-taxed above-average years before the books balance, whoever is in power. It looks like taking more than one business cycle to pay for the cost of the last one.
