Pre-Budget Report as-it-happened
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By Ian Dunt
11:00 – An hour and a half until chancellor Alistair Darling delivers his Pre-Budget Report (PBR), in which he is expected to announce a super-tax on bank bonuses and cuts to public spending. The PBR will come right after this week’s PMQs, which you can keep track of on politics.co.uk‘s PMQs as-it-happens page.
12:32 – If you’ve joined us from PMQs, welcome back. If you’ve just arrived, welcome onboard. PMQs itself is just winding down with Brown – you guessed it – defending his economic record. Brown is asked if he will ever lift the ban on fox-hunting, which allows Brown to say the Tories are making “a terrible mistake”.
12:34 – Darling stands. He reiterates the events of last year, with some less-than-colourful accounts of the financial crisis. None of the choices the government made were easy. As a result of them though, global confidence is returning. The housing market is stabilising and the stock markets are up by 30 per cent. The UK has suffered because of the crisis, because we have more homeowners, and we export more. As demand picks up abroad we will benefit, and the UK should start growth by the end of the year. But Dubai shows how fragile recovery can be.
12:36 – To cut support now could wreck the recovery. Darling reminds MPs about the VAT cut. The VAT will return to 17.5 per cent on January 1st 2010, and he won’t make any other changes to VAT. Brown seems unusually serene and stares at the Tory benches. A card up his sleeve? The empty property relief threshold increase will be extended. Empty commercial properties worth less than 18,000 will be exempt from business rates. He’s deferring the increase in corporation tax for small business until the recovery is secured.
12:39 – The ‘time to pay’ deferment scheme will be extended for “as long as needed”. The stamp duty holiday will end on January 1st, he confirms.
12:40 – Unemployment will keep rising, he warns, but it remains lower than much of Europe. “Unemployment can never be a price worth paying,” he says. He reads the speech like one of those manuals for putting together your furniture from Ikea. There are 1.56 million claimants for unemployment allowance, something he’s proud of. But groups need more help, especially the young. From next month, no-one under 24 will be unemployed for more than six months before being given work or training – that’s down from one year. The education or training guarantee for 16- and 17-year-olds will be extended for another year.
12:44 – The tax credit system has benefited 400,000 families, Darling argues. The retail price index has been negative for most of this year, the chancellor continues. The basic state pension won’t stay stable – it’ll rise by 2.5 per cent from April 2010. Bingo duty will be cut from 25 per cent to 20 per cent. Lots of laughter from MPs, many of whom are personally affected.
12:46 – Child and disability benefit will rise by 1.5 per cent. He’s just spending so far. Something must be coming or it’s just madness. He confirms he’s sticking to previous projections for next year. His forecast for 2011 is 3.5 per cent – that’s unchanged and in line with the Bank of England (BoE).
12:48 – Consumer inflation will rise to 3 per cent, he predicts, partly because of the VAT reintroduction. It should return to 1.5 per cent by the end of next year though. He previously forecast £50 billion taxpayer losses from banking sector interventions. These risks are now diminished, Darling says. He revises it down to £10 billion, but says his objective remains to get all the taxpayers’ money back.
12:50 – Public sector net borrowing: He is mapping out a sensible timetable, he says. He doesn’t want to risk delaying the recovery. He says Japan tightened prematurely in the 1990s and it went horribly wrong for them. There should be a fall in borrowing until 2013. Net debt as a share of GDP will peak in 2015/16. The borrowing forecast is up from £173 billion to £176 billion in 2010/11. Borrowing will fall to 4.4 per cent of GDP in 2014/15. Tories laugh.
12:53 – Net debt to be 56 per cent of GDP this year and 78 per cent in 2014/15. Total bank loans to business today are above where they were when the crisis hit, he says. But other businesses have reacted by repaying existing loans, which is why net lending is down. But some small and medium-sized businesses can’t get the loans they need, he admits. In January, the government launched the enterprise finance guarantee. It will be extended for another 12 months.
12:56 – There’s to be a £500 million growth fund for small businesses. Various schemes will support private and public investment in low-carbon projects. Commitments to carbon capture and storage will be doubled. He wants everyone to become more energy efficient, and the roll out of smart metres will secure this by 2020. An additional £200 million will come into play from April to improve energy efficiency – he’ll increase pressure on energy companies too. He wants to fix old boilers, which are inefficient. This will be done in the same manner as the car scrappage scheme. People with solar panels or wind turbines will get £900 tax free on sales to the National Grid each year. Electric cars will be exempt from company car tax for five years.
12:58 – There’ll be financial support for 10,000 internships for low-income background graduates. He’s relaxing field allowance criteria on oil and gas to encourage further exploration.
13:01 – There’ll be a 50p tax on landlines to fund superfast broadband. Income from patents in the UK will benefit from a new 10 per cent corporation tax rate. Here we go – tax increases will be guided by values of fairness. Darling reminds MP of how bad bank losses were. All banks have benefitted from government help. A tax on profits would prevent them sorting themselves out, so he decided against it, but their decision to pay bonuses is wrong, Darling suggests. “I’m giving them a choice.” If they use profits to build up capital base, that’s fine, but if they aim at bonuses, he’ll hit them with the supertax, which will be paid by the bank, not the employees. It will hit bonuses over £25,000 – a bit higher than we thought.
13:05 – He reminds MPs of the pension tax relief policy from the last Budget. No-one with an income under £40,000 will be affected, he promises, but the pensions tax relief reduction will go ahead. Inheritance tax threshold frozen at £325,000 until 2011 – thought so. That’s a Tory dividing line, right there. Avoidance and evasion will be tackled. There will be a freeze on the higher rate income tax threshold in 2012.
13:08 – New anti-tax avoidance measures will protect or raise £5 billion. Spending plans for next year will remain unchanged. Total public spending will grow by 2.2 per cent in 2010/11, Darling says. “We take these decisions from a position of strength,” Darling says, and the Tory benches erupt with noise. He won’t go through department by department cuts, but says current spending growth can fall to an average of 0.8 per cent a year in between 2011/12 and 2013/14. “Some programmes will need to be stopped altogether,” he says. £10 billion has already been saved from the NHS. Frontline services will be protected, he confirms.
13:11 – He promotes the government efficiency drive, abolishing quangos and so on – this raises Tory laughs again. By 2012, state contributions to many public sector pensions will be cut, saving £1 billion a year. Public sector pay constitutes half of departmental spending. In 2011 and for two years onwards, public sector pay settlements will be capped at 2 per cent. Henry Bellingham is ticked off by Bercow for his running commentary. These are difficult choices, Darling says. Darling praises the valour of our troops. He says for the next year a further £2.5 billion will be set aside for military operations in Afghanistan. He will help those retiring from the forces with £5 million for ex-service personnel who want to set up their own businesses.
13:16 – There will be a guarantee of development funding of 0.7 per cent of gross national income by 2013. This corresponds to Tory guarantees on international development. No-one earning under £20,000 will pay more national insurance, he promises, but all NI rates will rise by an additional 5 per cent. Schools, hospitals and policing will get more spending over and above inflation past 2010/11. Ed Balls looks like he dreams of killing Darling every night. “I commend this statement to the House,” he says.
13:19 – Osborne gets up. “We were promised a pre-budget report and what we got was a pre-election report.” The full extent of the disaster is before us all. Labour decided to leave the big decision until after the election, the shadow chancellor says. Every family in the country will be forced to pay for years for this government’s mistakes, he says. “Never trust a Labour government with your money again,” Osborne shouts.
13:20 – He launches into a damning and wide-ranging attack on Labour’s economic policies. “That prime minister used to stand at the despatch box and say he’d rewritten the rules of the economy. This prime minister inflicted on us the deepest and longest recession in modern history.” He says the chancellor had to restore confidence in Treasury forecasts, produce a credible debt plan and show the world the UK is open for business again. He failed on all three.
13:22 – Darling gave annual contraction figures for the UK and the total for every other country, Osborne says. Osborne says the PM wants to get his forecasts wrong on purpose, while the chancellor wants to get them wrong by accident. There will be £789 billion of additional borrowing over the next few years, Osborne says. £1.4 trillion: that’s the real national debt forecast, Osborne says.
13:23 – Osborne mocks the Fiscal Responsibility Act. Yesterday, another credit rating agency warned Britain was at risk of a downgrade, he reminds Brown and Darling. What Darling said on savings is just not credible, according to the shadow chancellor. He mocks the efficiency drive. He says the government came late to the bonuses idea. Osborne plays around the topic, but isn’t really ready to say whether he supports it yet. It sounds like the Tories probably will – in the end.
13:26 – Darling is trying to ring-fence a black hole, Osborne says, to laughs. He mocks Darling saying he is acting from a position of strength. Why isn’t there a spending review? he asks. Suddenly it has to wait till after the general election. It is the massive missing piece of the PBR. “They are not being honest with the British people about the real price of their incompetence,” Osborne says. Osborne rejects Darling’s “higher tax on jobs”. The message to aspiring families is “pretty clear” – if you want to get on in life, then the Labour party is not for you anymore. “All that work they did to drag their party onto the centre ground, all that is gone,” he says. Labour has erected a sign over the country saying: ‘Closed to enterprise’. Labour are setting one party of the country against the other, he says, continuing the Tory attack on Labour’s supposed ‘class war’ agenda. If you keep on spending more than you earn, sooner or later you run out of money, Osborne reminds Labour.
13:30 – Osborne suggests the public will prefer the Conservative’s more honest approach. The PM always called himself the “nation’s bank manager”, Osborne says. He bet the nation’s finances on the property bubble, and now he wants the taxpayer to bail him out – but most bail-outs “start with a change at the top”.
13:33 – Darling gets back up. He is, it goes without saying, far more serene. He says the Tory problem is that they can’t say what action they would take. The shadow chancellor never said what he would do, all we know is he’d take action more quickly. If you try to cut the deficit in the next parliament you have to cut more. Darling says he represents a constituency which is aspirational, but they won’t think you do that by giving tax breaks to those in the top 1 per cent of the population. Osborne is long on politics, “very short on good ideas”.
13:37 – Vince Cable, Lib Dem Treasury spokesman, gets up. He thanks the chancellor for sending him the statement even if it was missing “43 paragraphs”. What we needed was a national economic plan, and what we got was a manifesto. Cable praises some Labour chancellors, and said they would not have been so obsessed with creating tactical dividing lines. “This is a good Budget for bingo and boilers,” Cable jokes.
13:40 – The chancellor has been provoked into action by the “extraordinarily stupid and arrogant behaviour of the RBS board”. But how will he stop the banks converting bonuses into salaries? How will he actually prevent tax avoidance? Cable wants examples. Excellent and precise questioning from the calm and capable Lib Dem man. Not many people are left in the Chamber to hear it, unfortunately. He suggests taxing bankers by putting a levy on tax profits because they rely on the taxpayer guarantee. Basically, make them pay for the insurance the taxpayer provides.
13:42 – He questions the government’s projections of economic growth – has the government made an estimate of the risk of a double dip recession? “What’s the risk of these things happening? Is in one in ten, one in two? We can’t just operate on optimism.”
13:43 – Cable mocks Osborne’s claim that we’re all in this together, as basically inaccurate. But he also attacks Labour for suggesting his proposals are fair – they are not, he insists. “For the next five years there will be a real hard slog for this economy and the chancellor has not set out the path we need,” Cable ends. Darling stands to reply to him. Needless to say, he tells him he disagrees with him.
13:47 – Darling says Cable didn’t come out with any alternatives. He supports his National Insurance plan. People responsible for banks should bear in mind they’ve had a lot of public support. He says Cable hinted at a windfall tax on the banks, which he says would be a mistake. If the bonus is over £25,000 there’s a levy of 50 per cent – “there will be anti-avoidance measures”. Darling says if it gets turned into income, then they’ll pay income tax on it. Cable laughs, scornfully. He defends himself on the dividing lines attack and says the divisions are there without having to purposefully create them.
13:48 – And with that, backbenchers get up to start making their contributions. We’ll leave it there for today. Stay with politics.co.uk for all the news and analysis on today’s Pre-Budget Report, throughout the afternoon.
