The figures announced by the Chancellor in his Budget on Wednesday - which showed that the UK is in the worst recession with the fastest rising unemployment and the worst public finances since the Second World War - were depressing enough. But what was even more depressing was the lack of any credible, immediate action to address these problems.
If you look at the small print, the Government is proposing tax increases for the many not the few and reductions in public spending after the next Election - presumably because Labour don’t expect to win the next Election and hope the Conservatives will get the blame for these unpopular measures.
But for the next couple of years, it proposes to continue increasing public spending. The Chancellor did announce a couple of tax increases, the headline measure being an increase in the tax rate for earnings over £150,000, which the Chancellor says will raise £2 billion. That’s almost certainly an over-estimate - it will be very easy for many of those affected to re-arrange their finances to avoid some or all of this increase and some will no doubt move to countries with lower marginal rates of tax. But even if the Chancellor is right, £2 billion is a drop in the ocean when you look at the state of the public finances. This measure was included to distract the media’s attention from the bad news, not because it is going to have a meaningful impact on the budget deficit.
According to the Chancellor’s figures, the national debt will double over the next five years to £1,400,000,000,000 - that’s £22,500 of debt for every man, woman and child in the country. The annual interest on this debt will be more than we spend on our schools. But the Chancellor’s figures are based on highly optimistic forecasts of how the economy is going to fare:
- He is predicting that the UK economy is going to grow by 1.25% in 2010. A couple of hours after he sat down, the International Monetary
- He said he believed that the economy had contracted by about 1.6% in the first three months of this year. The official figures were published yesterday and showed a contraction of 1.9%.
All of which means we are going to need to borrow more than the Government is admitting. Even on the Chancellor’s figures, it is going to take 25 years to get debt back to 2007 levels. There is something fundamentally immoral about burdening our children with this level of debt.
So what should we do? Well, when you are in a hole the first thing to do is stop digging. The Government is currently spending £4 for every £3 it raises. We can’t go on like that. If we want to avoid the crippling tax rises Labour have planned for after the Election, we need to restrain Government spending now. That’s going to involve some tough decisions. But if we put it off - as the Government is proposing - it is only going to make things worse.