Pre-Budget 2008: As-It-Happened
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11:03 – It’s still several hours to go until Alistair Darling stands up at the dispatch box, but events are developing a momentum of their own. Both Gordon Brown and David Cameron spoke to the Confederation of British Industry (CBI) today, with Cameron’s joke about a Glasgow kiss dying a gruesome death in the hall. “You’re all a little slow today,” he said, rather pitifully. Mr Brown was on usual form; rotund and evasive with an ominous undertone of cheerfulness. Pressure groups and economic analysts are in fits of commentary since leaks to various newspapers seemed to confirm a cut in VAT paid for by an increase in the top rate of income tax. You can keep up to date on everyone and their cat’s latest opinions in our Issue of the Day section.
11:50 – There’s clear tension in the Tory line today, with a ComRes poll for the Independent finding most of them – two to one – rather keen on tax cuts to stimulate the economy. Brown has the same problem, with Labour MPs opposing cuts by four to one. Of the two, Brown is in a better position. He can sell the cuts to his party as long as they are clearly aimed at helping middle and lower income families. Cameron is in a weird place. A Tory opposing tax cuts is a strange thing to behold. It’s possible last week’s speech disassociating the party from Labour spending commitments will let him get away with it, but it’s far from certain. All of this is somewhat premature though. Cameron refused to get dragged into the specifics of the Report today. Until George Osborne gets up to respond to the chancellor, we won’t really know how the Tories are going to handle this one.
14:15 – So what can you expect? Well Brown had something to do with it, so tax credits will be in there somewhere to benefit low earners. There will almost certainly be a drop in VAT to 15 per cent, which, rather interestingly, got the backing of former Tory chancellor Kenneth Clarke today. The cost to the Treasury means it won’t last long. It looks like there’ll be a 45 per cent tax band on people earning over £150,000. Labour left wingers would have preferred something more substantial, but it marks a real break from Labour’s cautious past that the words ‘up’ and ‘income tax’ are now used in the same sentence. The amount of money you gain off this tactic, by the way, is negligible (about 1.2 billion a year) but it looks good on the front pages. There will probably be a delay in vehicle excise duty and a small cut in the small companies rate of corporation tax. Also look out for a headline grabber that hasn’t been leaked to the newspapers.
14:44 – By the way, click here to watch the pre-Budget report and Click here for the Treasury’s official micro-site .
15:08 – It’s about twenty minutes until the session gets going. The Treasury team have just walked out to meet the cameras. They’re stood holding the document like some strange mixture of the Easter Island statues and an official school photo. Vince Cable is the latest to say the leaked income tax plan won’t be racking in much cash. He told the BBC rich people would simply put channel funds into capital gains. “If people pay capital gains they pay 18 per cent whereas now they will be paying 45 per cent of their income. So if they have got a good accountant, they will simply turn their income into capital gains and avoid paying tax altogether.”
15:19 – Don’t expect any serious debate in the chamber after the chancellor’s statement. The Report is treated like a parliamentary statement, meaning only questions, not speeches, are allowed. It should all be done within an hour and a half. It’s an unfortunate structure to impose on such an important announcement, but parliament is not the sort of body to change its ways.
15:28 – Stop the press. Darling has sat down. The House is predictably rammed. James Purnell is finishing off his questions. Darling stands up. The House is surprisingly noisy. He explains how odd and unusual the economic climate is. Thank you very much, Darling, we hadn’t noticed.
15:30 – His stated aim to let us “live within our means” as a country gets a barrel of laughs from the Tory benches. He begins by offering his assessment of the global economy. Living standards have risen sharply over the last ten years, but the current crisis “has seen these conditions rapidly undermined”. Global shares have fallen by 50 per cent since May. Commodity and food prices have risen sharply. Inflation is consistently above target. All is dark and full of fear, basically. “This is an unprecedented global crisis,” he says.
15:34 – The UK’s leadership of the G20 next year will involve the country managing all these horrible problems. Supervision and regulation will be made more effective. The crisis also illustrated how problematic overseas territories and Crown dependencies can be by attracting banking customers without contributing to the Exchequer. Michael Fabricant, the Tory MP, is told to shut up by the Speaker. “A strong banking system is vital to the health of our economy.” No retail depositors are losing out so far, because of what the government has done.
15:37 – Behind Darling sits Brown, Harriet Harman, leader of the House, and Jacqui Smith, home secretary. When Darling says the UK economy is well placed for a recession the House almost explodes with Conservative hatred. Labour MPs try to make up for it with constant cheers when Darling is talking. Party political doesn’t even cover it. Darling insists the government did fix the roof while the sun was shining. More unconcealed derision from the blue corner.
15:40 – Monetary policy is not enough to stimulate the economy on its own. We need “real help”. Darling starts talking about the detail of the economic forecast, but he frames it in depressing language about world prospects. Growth this year will be three quarters of a per cent. The IMF says the US will also contract due to weak consumer spending. Darling says output will continue to fall fro the first two quarters of next year, but will then recover, because of the plans announced today.
15:42 – Again darling says the UK is well positioned to benefit from a recovery, but to less jeers this time. The House is paying attention now the rhetoric is on its way out and the actual plans are coming into view. He predicts growth of 1.5 per cent to 2 per cent in 2010. Now Darling goes party political, mentioning Tory plans to, in his language, do nothing, at every corner. Now Darling moves onto the fiscal framework. After this he’ll be onto the bit of the report you’re interested in, rather than a technical description of what you already know.
15:44 – Brown, and I’m not making this up, looks like Stalin. Severe and arrogant, he gazes over the chamber like it’s his personal fiefdom. Vince Cable’s crack that he went from Stalin to Mr Bean looks like it’s reversing itself. Darling explains how and why tax revenue is falling. There will be a rise of £78 billion borrowing this year. Gasps in the chamber. But by 2016 we will again be borrowing only to invest. Crazed, rabid laughter fills the chamber from the Tory benches.
15:49 – Borrowing as a percentage of GDP will go up to 41 per cent, then 48, then 53 before “peaking at 57 per cent”.
15:50 – Current government spending on services is now at £584 billion, by the way. The government will find an additional £5 billion of efficiency savings, he announces.
15:52 – Spending will continue to rise, though, by about 1.2 per cent in real terms. Now we get to the actual measures.
15:53 – £3 billion pounds of capital spending will be brought forward for spending. He says they can definitely be delivered on this revised timescale. The money will go towards schools, energy, that sort of thing. Keynesian stuff, basically. But he also wants money in the economy immediately. The fairest approach, he says, is through a cut in VAT to 15 per cent until the end of next year. The reduction comes into effect next Monday.
15:55 – Retailers should pass it on as soon as they can, he says. It’s only possible, he adds, because he rejected advice to take no action. He’s making to income tax allowance announcement of May permanent, and to increase it. That’s the bit for the 10p victims.
15:56 – He announces the 45 per cent income tax change on those over £150,000.
15:58 – VAT changes will lower the price of tobacco and alcohol, so he’ll offset it to keep the prices at the same rate they are on this year. The reaction to that is so strong the Tory deputy chief whip is told off by the Speaker.
15:59 National insurance contributions are up half a per cent. But the starting point for national insurance will align with income tax so no-one under £23,000 will see a change.
16:00 – We’re onto small businesses. To help meet running costs there’ll be an increase in threshold of empty property relief. Firms can now spread tax on a timetable they can afford, not just VAT but for all company taxes. “Real help when businesses need it most.” Backdated business bills can be spread too.
16:03 – The increase in small companies rate of corporation tax will be deferred.
16:05 – Darling says the package adds up to a £15 billion worth of measures. He follows this with more rhetoric about helping people. But the environment has not been forgotten, he adds. After some justifying of the government’s record, he says the government will be setting out detailed proposals for how to hit emissions targets next summer. Air passenger duty will be reformed into a four band tax system meaning those travelling further will meet the cost.
16:08 – £100 million will be introduced to help people insulate their homes. It’s new money. He’ll also bring forward £50 million. Ofgem will start monitoring price changes and detailing differences between wholesale and customer prices. If nothing happens the government will use statutory powers to make it happen. Good, strong rhetoric on this.
16:10 – Mortgage supply will be improved by seeking approval from the European Commission to give temporary security guarantees.
16:13 – Three months will be left before homeowners face repossession, in agreement with the industry, Darling announces. £15 million will be put into free debt advice across the country.
16:14 – New mortgage support will be offered to vulnerable home owners – now covering those at greater risk as a result of taking out second mortgages. There will be £775 million in new modernised social homes.
16:17 – At the end of every section (housing, businesses etc) Darling reminds the audience he’s only doing this because the government believes in doing something. Basically, he stabs Osborne and Cameron at the end of every paragraph. There needs to be more employment advice in the workplace, now available to all redundancies.
16:18 – The national employment partnership will involve 20 of the UK’s largest employers, in working with government to increase vacancies and step up recruitment. Jobcentre Plus and the New Deal will get new funding.
16:19 – £1 billion will be set aside in reserve. Motorists: the last budget increased the bands for vehicle excise duty. He’ll continue with that, but he’ll phase in new rates at a lower rate of increase. More polluting cars will only increase by £30 maximum, less polluting cars will see no change or even a cut. A saving gateway means the government will add money all savings. 50p added for every pound saved, for certain incomes. Families with children: increases in child tax credit will come into play next April.
16:22 – Child benefit will increase to £18.80 next year, but he wants to help pensioners too. Modest single income pensioners will get £130 a week. The biggest increase in pension credit since 2003. Basic state pension will increase to £95.45. “Pensioners should see a real benefit.” But no wait till April for child credit, it’ll come in January. Every pensioner gets a £60 pound one-off payment in January. Fifty million people will gain from the beginning of next year, he says.
16:25 – OK, it looks like that’s it. “I commend this statement to the House.” Osborne gets up. “No-one can doubt now the prime minister’s claim to have abolished boon-and-bust was one of the greatest deception,” he says. A poor start, although the noise from MPs is remarkable. Osborne immediately grabs onto the level of debt required for what he’s announced today. He’s giving £20 billion in give-aways and taking back twice that in increased taxes. “In the end all Labour chancellors run out of money, and all Labour government bring this country to the brink of financial bankruptcy.”
16:27 – Tax rises will come in 2011, he says. “I wonder why he picked those dates,”£ Osborne says, wryly. The House has never before heard borrowing figures of such epic scale, he says. He also criticises the growth forecasts as “vastly optimistic” compared to independent analysts. “And now he’s taking out another credit card.”
16:29 – “It’s all America’s fault,” says Osborne, quoting Darling. “What nonsense. No American politician said he’d rewritten the laws of economics.” The second excuse the chancellor made today, Osborne continues, is about Britain’s relative strength in facing recession. Then why is it predicted to be worse here than anywhere else? Osborne reels off predictions from IMF and the like saying the UK is not sitting pretty at all.
16:31 – Osborne makes a funny out of the fact Labour MPs cheered the 10p tax con when it was announced, and now cheer it when its cancelled. “He got a cheer when he announced higher top rate of income tax. No surprises there.” But it won’t make up much of the money. He says the national insurance increase is an income tax in all but name. “This isn’t just a bombshell, it’s a precision guided missile at the heart of a recovery.”
16:34 – Osborne is coming on strong, and the Tories are trying to support him by making as much noise as possible, but it’s not enough to counter the chancellor’s sustained confidence in his monotone delivery. Darling should have directly insured business lending, properly funded the help for the private sector. He should have got a grip o government spending. “That is what we would do and he would not.” The national debt will be doubled. “This is exactly the road Britain is now on with this prime minister.” It’s the greatest failure of public policy. Three questions – does the chancellor accept national debt will double. Why is the UK forecast to have worst recession of any major economy? Will he accept families will be worse off because his proposals are temporary while tax hikes will be increased.
16:39 – Darling says the government helps while Tories do nothing. He points out that the shadow chancellor doesn’t even mention pensioners families with children. “All he is saying is that faced with the difficulties we have today, he is not prepared to take any action.” This is the man who said bank of England couldn’t cut interest rates just a week before they did, Darling reminds the Commons. The shouts lead Michael Martin, the Speaker, to again plead for order. MPs don’t even listen for two seconds.
16:41 – Again Martin calls for order. No-one cares. Even front benchers are ignoring him. Mr Speaker, not only are they not listening to anyone in this House, the problem with the Conservative party is they are no longer listening to anyone outside either.” That sends eruptions across the House. The Speaker is fighting a loosing battle. He calls on MPs to bear in mind he may not ask them to question the chancellor if he keeps on seeing them make noise.
16:44 – Vince Cable, Lib Dem economic hero, gets up. We need serious tax cuts for the low paid. The chancellor’s plans are based on a small cut in VAT. What Cable fails to see is how the economy gets a major stimulus in the sale of an imported flat screen television. He says the money should be put directly into people’s pockets through income tax cuts. He savages the predictions of growth.
16:46 – The government should implement a large scale programme of social house building to provide not just houses but employment, but really all it does is rhetoric, adds. “We have a very, very serious crisis.” The Conservatives don’t recognise it so they don’t do anything. The government needs to do more. Darling says he doesn’t agree with everything Cable says, but thanks him for a more thoughtful response than the one given by the shadow chancellor. Interesting, if a little scientifically political. It’s also true, at least in terms of policy.
16:50 – He stresses he is providing “very substantial sums” to enable the building of social housing. “Whenever you announce something the Liberals always call for more. It’s not entirely clear how they plan to fund some of it.” It’s now time for backbenchers to ask their questions, and elitists that we are, we will now move on ourselves. Stay with politics.co.uk for all the latest analysis, comment, news and reaction.
