The pre-Budget statement is welcome. There should be debate about the overall status of the economy. But Gordon Brown’s attempt deserves a mixed reception.
Part of it was a mini Budget with gimmicky measures to help pensioners with fuel bills, plus proposals to abolish ACT (advanced corporation tax).
The first seems good, unless you’re a single parent facing a cut in benefit. The second accelerates payments of corporation tax, yielding the government #8bn in extra revenue during this Parliament.
The chancellor’s main problem is his determination to stick to Tory spending plans. That partially explains why he has presented a one-sided and cautious view of the outlook for the public finances. He wants us to believe that austere measures, which undermine Labour’s election pledges, are justified. They are not.
He has chosen one growth forecast for the macro economy and a deliberately lower one for the public finances – an unprecedented measure. He is therefore underestimating the growth benefits to the public finances by a potential #37bn over the Parliament. He ignores the almost #8bn benefit from ACT reform and the #0.7bn benefit from freezing NI contributions. He assumes no asset sales, despite recording the inventory of available assets. He has deliberately taken cautious projections for VAT receipts when the Audit Commission’s approved model would yield an extra #8.6bn. This understates the projected revenues for the public accounts – even below the middle range of possibilities – by #189.2bn over the Parliament.
There is therefore room, if necessary backed by a short-term tax increase, to start delivering smaller class sizes, lower hospital waiting lists, and to stop benefit cuts to the most vulnerable.
The chancellor is to be commended for aiming to squeeze boom-and-bust from macro-economic management. The trouble is that he appears to be planning a bust-boom in the public services by starving them of funds now and throwing money at them in the second half of the Parliament. Malcolm Bruce is Liberal Democrat MP for Gordon and the party’s Treasury spokesman
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