Pre-Budget Report Reaction

Alistair Darling’s sprinkling of fairy dust from Monday seems to finally be settling and now that we can see the Wizard of Oz’s lips moving, we can get to the nitty-gritty of the Pre-Budget Report small-print, and, specifically, their effects on Wales.

I’ve already explained that I don’t think that a cut in VAT will be enough of a financial stimulus to justify its top billing as part of a recovery package, and also that the introduction of a new higher rate of income tax is more political policy than economic.

Here I examine the various measures that were specifically introduced by the UK Government on Monday.

Public infrastructure works

The second largest part of Labour’s financial stimulus is a public infrastructure works programme, but this isn’t the ‘new’ money that we were hoping to see.

The money being used is being brought forward from that which would have been spent as part of the present three-year spending period.

The idea here is that the financial stimulus would provide jobs now in the hope that the economy will recover by the time that this money would have been spent in 2010-11 so that those employed would be in gainful employment.

It’s a snub in many ways to the devolved administrations as, because much of this spend is in England-only fields already allocated in the spending review, there will be nothing extra available to assist what were in any case tight spending reviews.

Just like the difference between the VAT cut and a genuinely radical proposal, this fails to cut the mustard. If I and my generation are going to be paying for Labour’s failure for most of my life then I’d rather it was going on something that would be useful for generations, perhaps solving many of our coming energy supply problems with, for example, tidal lagoons.

Labour have no vision for how to deal with the problems we’re facing – it’s like they’re reading a textbook, and following it line-by-line, rather than take the opportunity to create something new out of the challenge.


Efficiency savings

Perhaps more worrying, though, are the unintended consequences for Wales of England’s ‘efficiency savings’.

Proof positive of the need for a review of the Barnett Formula is that savings being made in England’s health budget (£3 billion on estates with ongoing savings of £100m per annum) impact on Wales, irrespective of our needs.

That alone could lead to a loss to the block grant of some £200m from Welsh Assembly coffers, or, even if the current grant were to be ring-fenced would slow further growth dependant on funding to the English Health Department.

In coming years, in order to meet new targets set as part of the PBR, further efficiency savings will be made from the Health and Education budgets in England, leaving Wales further short-changed.

Already, in fact, £100m has been lost from Wales in 2009-10 from the figures in the 2007 and 2008 Pre-Budget Reports

In the short term, the UK government tell us that the shortfalls will be closed with money from the End Year Flexibility.

What they failed to explain openly to the Welsh media in their press release was that this ‘end year flexibility’ is, of course, money that already belongs to the Welsh Assembly – but what’s a little bit of spin between friends?

Or did they just think we wouldn’t notice?

Royal Mint

Well buried on page 119 of the Budget report is the news that, amongst a range of government arms-length owned companies, they are considering alternative future business models for the Royal Mint in Llantrisant.

It’s not quite clear what these models might be, but given the still neo-liberal colour of this government, privatisation or out-sourcing will undoubtedly be amongst them.

Llantrisant is a very nice part of Wales, not far from the M4 and the Vale of Glamorgan, but, already dealing with job losses from nearby plants run by Bosch and L’Oreal, anything which endangers the 700-odd jobs at the Royal Mint must be opposed – especially in the current economic climate.

Wales, it seems, whether with a Labour or Conservative government in London, is still in the economic frontline when it comes to jobs under threat.

The Vulnerable Poor

The yah-boo politics of Westminster has reverted back to its tribal nature as Labour reply to any comments from the Conservatives with taunts that they would have done nothing compared to the package announced by Labour.

Yet this PBR is amongst the least re-distributive reports from Labour in recent years, and very probably will have less effect on those most in need that many other budgets in recent history.

A little money has been brought forward for pensioners and children, but nothing life-changing.

Having brought forward child payments that were scheduled for 2010, they announced nothing for the kitty the following year.

The IFS/Barnardos released a report earlier this year suggesting that £3bn pa would rapidly deal with child poverty, supposedly a key government pledge. Yet this was roundly ignored in this PBR.

The same goes for Winter Fuel Payments for the elderly in 2009, after being much touted by the Chancellor and Prime Minister as their solution in 2008.

It’s actually quite shocking that these groups have received so little attention in this Budget – the only positives being the announcement of an End Child Poverty Bill (call me a cynic, but I rather action to legislation and target setting) and announcing an increase in the pension for 2010-11 that will be at least a 2.5% rise.

As these groups represent both our future and our past, they should be treated with a little more dignity and respect.

Conclusions

There’s a lot more that could be said on this Pre-Budget Report, some good, some bad.

The use of green taxes was disappointing, especially the air tax shift back towards per passenger rather than the expected tax per plane, but the help for small and medium businesses was more than some might have been expecting.

Ultimately, though, it was a bit of a dog’s dinner - trying to do lots of things, but failing to do any of them well.

As a financial stimulus budget, it will probably fail to really stimulate the economy, although, whatever happens, Labour will shout and bully to say that it will have achieved the measures they claim it was intended for.

But then, if it really is a Budget for a Spring election, then they would say that, wouldn’t they?

Pre-Budget Report Pre-Thoughts

If the ideas being trailed in today's press are as far as Labour are going to go in this afternoon's Pre-Budget Report, then it looks to be a very damp squib.

The two main suggestions are an emergency cut in VAT and a new high level of income tax after the next election.

I find it strange to agree with John Redwood, but his comments about the fruitlessness of the VAT change were, in my opinion, spot on.

The intention is supposedly to increase consumer confidence and get people to spend, but with the actual price cut being only around 2%, I cannot see how that will happen.

For example, an £11.99 CD or DVD will be around 25p cheaper. A £40 pair of jeans will have a pound off the current price tag - but with sales offering 20% off already, I cannot see what incentive this will offer, even if high street retailers decide to pass on the savings rather than just make a little extra profit for themselves.

It is only when you reach significant sums of money - £500 for a smart new television that the savings become noticeable, and, by then, who cares?

Plaid have already suggested a serious VAT cut from 17.5% to 5% on labour-intensive industries that would cheapen costs of necessary work such as housing renovations and make the price comparatively attractive - more than 10% cheaper than at the moment.

But if the government wants to make a real difference then they should be putting money in people's pockets and give them the chance to spend it.

For a not-dis-similar figure to the cost of the proposed VAT cut, the government could cut the amount of income tax paid by standard rate tax-payers and let that money filter through into the real economy, helping low-earning families and taking a good few people out of the tax trap altogether.

The headline-grabber this morning, though, is the proposed new rate of income tax for high earners - postponed until after the election.

Let's not pretend that this is anything to do with the current crisis - this is party politicking par excellence, a line in the sand that if the Tories dare to cross will see them hammered by Labour as being the party of the mega-rich.

The amount of money that will be raised by this is minimal. People who earn more than £150,000 per annum already have excellent and expensive accountants who are experts in tax planning and avoidance, so without additional compliance measures this is little more than a gesture.

If Labour were serious about this as a tax-raising scheme to balance a hopelessly overblown Budget, it would be set at 50%, rather than the middle of nowhere 45%, it would start at £100,000, and it would be introduced in the next financial year.

But they're not serious - they just want the Tories to say it's bad so that in spite of leading us into the recession they can claim that they are the party of the people, and the Conservatives the party of the Toffs.

Brown and Darling are fiddling while our economy burns.

Or will there be a surprise this afternoon?