Time for bravery, not caution

Time for bravery, not cautionThe global financial storm that started last
summer rages on. It’s howling as hard as ever in the markets.

Yet the tempest had only a walk-on part in Alistair Darling’s first Budget,
and that was purely to allow the chancellor to stress its global nature. Blame
the world, not me, if things go wrong, was the message.

The overwhelming impression conveyed by the Budget was of a chancellor at the
mercy of the markets ­ simply twiddling his thumbs, hoping that the economic
weather would improve.

Sadly, there is a lot of truth in the unflattering picture. Darling’s
economic forecasts may or may not be over-optimistic. But even on the basis of
his own arithmetic, the chancellor’s back is firmly to the wall.

The debt numbers have already been fudged by the exclusion of Northern Rock ­
but increased borrowing will take the government to the very brink of breaching
its cardinal rule of keeping debt to within a ceiling of 40% of GDP.

Meanwhile taxes are rising faster than spending ­ taking air out of an
already deflating economy. And this is probably the golden scenario. The
financial sector pays nearly a third of all corporation tax receipts. Our
dependence on finance is one reason the financial storm menaces Britain more
than other countries.

There may be little a hemmed-in government can do to offset the effects of
the storm. Darling cannot pick up any slack by cutting tax or spending more.
David Cameron’s gibe about the government having failed to prepare for the worst
stung precisely because it was true.

But Darling seems to be trapped in a ‘business as usual’ mentality. And this
may prevent him from taking steps to mitigate the storm. Some of these steps
fall outside the scope of the Budget ­ forcing banks to recognise losses and
raise additional capital if necessary to restore the supply of credit to the
economy. It’s hard to know whether Darling has got to grips with this. He talked
vaguely in the Budget about encouraging banks to offer long-term fixed rate
mortgages. Who on earth does he think would offer such a product?

On tax, there was a poverty of ambition. Darling was right to stick to his
guns on the non-doms. But his proposals certainly fail Colbert’s test of a good
tax ­ that it should remove the maximum number of feathers from the goose for
the minimum of hissing.
As for a simplified tax system ­ or indeed one that does not favour debt over
equity finance (one of the root causes of the financial boom that preceded the
storm) ­ those measures will have to wait for a more courageous chancellor.

Jonathan Ford was a founding editor of
Breakingviews.com