ANALYSIS:The UK is facing its highest deficit in history, but it is lower than Alistair Darling expected, writes MARK HENNESSYLondon Editor
FACED WITH the highest borrowing in British history, Chancellor Alistair Darling still managed to get cheers from his own yesterday as he succeeded in giving Labour MPs some nuggets to take to election doorsteps.
In private, Darling is possessed of a good sense of humour, even if it does not translate on to television, but yesterday he brought Labour MPs to their feet in raucous approval by embarrassing the Conservatives with the announcement that he is set to sign a new tax deal with Belize, the tax home of the secretive and influential Tory chairman Lord Michael Ashcroft.
Like much else in yesterday’s budget, it is a cleverly created bauble – the other being tax rises on super-strength cider – that will do little or nothing to fill the gaping hole in the exchequer. An inspection of the fine print which accompanied Darling’s budget shows that the treasury is not expecting any windfalls from the Central American country any time soon.
Despite his difficulties, Darling is confident that the economic picture facing the UK, which will have to borrow £166 billion (€185 billion) to sort out its books in the year to April, is better than it looked last December when he produced his pre-budget announcement.
Borrowing will £12 billion lower than he predicted then, while tax receipts are coming in ahead of forecasts.
He indulged in some plain electioneering by cutting stamp duty rates for first-time buyers seeking to buy homes worth less than £250,000. Darling is offering them a temporary, two-year reduction, and paying for it by imposing a 5 per cent rate – which will, no doubt, turn out to be permanent – on those buying £1 million homes. The measure harks back to “the dividing lines” approach to politics so beloved by Gordon Brown.
Equally, he has acted to free up lending by forcing partially nationalised banks Royal Bank of Scotland and Lloyds to lend £94 billion in the coming year to business – compared with little more than a third of that in the last 12 months.
Darling has also put in place an appeals process for those who feel aggrieved by the decisions of bank managers.
Tasked yesterday with not making Labour’s election chances any more difficult, Darling succeeded by virtue of having announced months ago that income tax for the top 1 per cent, earning more than £150,000, would rise from April, along with a significant rise in national insurance rates for all workers. He also implied that the UK’s deficit can be dealt with by growth and by spending cuts that will be little noticed by the public.
In accompanying documentation, government departments vowed their intention was to cut £11 billion from spending plans, including £4 billion from the department of health, yet they implausibly insisted that this could be done without cuts in frontline services. Such promises are unlikely to survive election night, whoever wins.
Because of the difficulties in his relationship with his prime minister, who he implied had “unleashed the forces of hell” after he warned last year about how bad the recession would be, Darling is unlikely to be chancellor after May – regardless of whether Labour wins or not; but it is unlikely that his successor in 11 Downing Street will find life as easy as he painted it yesterday.
Up to now, Darling has implied, if not said outright, that extra tax rises will not be necessary to put the UK’s finances back in shape.
However, such declarations have been made before. In 1992, Tory Norman Lamont announced £5.5 billion in tax cuts before going to the polls, only to turn around and impose a £23 billion increase the next time he stood in the Commons to deliver a budget. All promises are subject to terms and conditions, especially with an election looming.
