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Little margin for error

Robert Peston | 15:10 UK time, Wednesday, 12 March 2008

So here are a few of the messages from Alistair Darling's first budget.

1) Don't be a four-wheel driving, cigarette-smoking, non-domiciled, boozer. Life is becoming much more expensive for you. Perhaps it's time to move to Switzerland, where at least you're allowed to smoke in public places and they don't look too closely at what's inside your bank account.

2) If you run a power company, you're being pressurised to cut prices for those with lowest incomes. You can't relocate your business abroad. And if you fail to comply, you can expect the government to name and shame you, or even use statutory powers to reduce the tariffs on pre-pay metres.

3) Most of us will notice tax rises, especially after 2009. But most of them are expenditure taxes and therefore avoidable.

4) The Treasury is sailing closer to the wind, in respect of the health of the public finances, than it has been for many years. It is projecting a £5.8bn fall in tax revenues in 2008/9 compared with what it had been expecting last October. But it has chosen to allow public borrowing to rise rather than make good that shortfall with immediate tax increases.

That makes sense, at a time when the confidence of businesses and consumers is fragile. Tax increases that bite straight away could have seriously damaged the economy.

But there are many economists who believe that the Treasury's central growth forecast of 1.75% to 2.25% for this year is far too optimistic. If they're right, the public finances may end up in worse shape than the Treasury expects. And with the public finances projected only just to meet the fiscal rules, there's little margin for error.

For Alistair Darling, as for the rest of us, 2008-9 looks like being a hair-raising time, economically speaking.

Comments   Post your comment

  • 1.
  • At 03:42 PM on 12 Mar 2008,
  • Antonio wrote:

NuLabour has been riding the wave for the last 10+ years with their tax and spend, spend, spend philosophy !!

Now Gordon Brown has jumped off the surf board and let Alistair Darling take his place just as they are reaching the beach or will it be the rocks ??!!

Robert Peston reports "there is little margin for error" - Why has NUlabour not been prudent(?). They could have set aside reserves, in the good years, as a contingency for the down turn we all knew was coming and then we would not be sailing so close to the wind !! Let's get back to basic sound housekeeping not all this smoke and mirrors !

Well, if it is the beach at least Alistair will be able to bury his head in the sand !!

Darling was in a difficult situation with a slowing economy and rising budget deficit. He couldn't afford to increase taxes too much because that could worsen the rate of growth. He could have done more to make it a real green budget though.

  • 3.
  • At 04:03 PM on 12 Mar 2008,
  • irvtheswerv wrote:

Well it looks like the game may finally up for our communist government. After 9 years of fiscal incompetence (the first couple weren't bad at all), I thought that they would learn that even governments can't spend more than they earn for ever. Too much to expect from our tin-pot diktat wielding wastrels. Projected borrowing of £46billion and £53 billion, are they mad?

  • 4.
  • At 04:16 PM on 12 Mar 2008,
  • MrT wrote:

The stealth taxes wouldn't have been so bad if we had seen some real improvement in health and education etc or actually put something by for a rainy day (year?)As at is i'm pleased that the Chablis drinking binge drinkers that litter town centres on a Friday and Saturday night are being taxed more. Nice one Ali...is any one in touch with reality in Downing Street or should we feel sorry that they've been caught between a Northern Rock and a hard place !

  • 5.
  • At 04:28 PM on 12 Mar 2008,
  • Mark Forrest wrote:

Why is the increase in the NI upper earnings limit not grabbing any headlines? this will cost everyone paying 40% tax another £500 per year in additional tax (sorry - National Insurance)

  • 6.
  • At 04:35 PM on 12 Mar 2008,
  • Simon wrote:

The real issue over the past 10 years has been the poor value we've had from the huge increases in public spending. More jobs and better benefits for the public sector combined with 'big' central government and 'big' local government has resulted in the current public finances mess. To get out of this mess, Gordon Brown should get out his prudent pruning shears and cut away at the dead wood. This doesn't mean hospitals and schools, but it does mean the huge bureaucracy that has built-up over recent years. If half of them went, none of us would notice.

  • 7.
  • At 04:43 PM on 12 Mar 2008,
  • Andrew Knight wrote:

You know there is a problem with a Labour governments finances when it can't afford to increase grants from its own budget to improve peoples homes to make them more heat efficent and save money to offset increasing fuel costs.
Public borrowing rules have gone out the window a long time ago.
PFI debt is around £100 billion and the public sector pension deficit is around £700 billion. Neither of those figures include Northern Rock or National Rails debts either.

  • 8.
  • At 04:49 PM on 12 Mar 2008,
  • R Chamberlain wrote:


Ali and his Many Thieves. Another nail in the tax payers coffin.

Brown will be remembered as the
"The Man Who Bankrupted Britain"

We have not seen the worst effects of his so called prudence in my opinion!

He makes Nick Leeson look thrifty

Grumpy BoB

Bolton

  • 9.
  • At 05:04 PM on 12 Mar 2008,
  • Sebg wrote:

As much as I hate to admit it, Darling has been left between a rock and a hard place, and I feel sorry for him... Makes me feel sick typing that!!!!
Admitting a slowdown in growth and the need for excess borrowing is a brave move in the current climate, but not a choice with which he had much option.
I do believe that the predictions on reduced growth are optimistic, Joe Public is already feeling the pinch, and the bottom is about to fall out of the housing market, the US recession is unavoidable, with the majority of countries with ties (such as UK and east Asian countries) will suffer in the shockwave.
I do not agree with the assumption that the UK is better placed to deal with the fall-out, those on the second floor of the Titanic were better placed than those on the third floor, but they still drowned...

  • 10.
  • At 05:07 PM on 12 Mar 2008,
  • John Constable wrote:

History does sometimes repeat itself.

The post-WWII Marshall plan money that came to the UK got spent by the (Labour) Government on homes 'n hospitals, which to be fair was in their manifesto (in the days when politicians tried to stick to manifesto promises).

So, UK industry tried to carry on cranking out goods using clapped-out machine tools from WWII, whilst the Germans wisely spent the Marshall plan money on brand new machine tools and immediately starting cranking out high quality goods that people wanted.

Fast forward to the 1970/80/90's and consecutive Tory and Labour Governments spend the North Oil bounty on goodness-knows-what, certainly nothing actually useful, whilst the genuinely prudent Norwegians saved most of their North Sea oil windfall.

We have to blame ourselves, each time we voted for these things/politicians and now we must suffer the consequences.

  • 11.
  • At 05:07 PM on 12 Mar 2008,
  • Geoff Berry wrote:

Robert,

Only 9 months ago I listened to Brown talk about the 10 years economic miracle he had personally created whilst simultaneously making all future trade cycles redundant.

What has gone wrong ?

  • 12.
  • At 05:35 PM on 12 Mar 2008,
  • Dee wrote:

Borrowing higher than forecast, income less than forecast.
How can Alistair Darling accuse anyone of making unfunded promises?
A cheap jibe by a cheap Chancellor.

  • 13.
  • At 06:02 PM on 12 Mar 2008,
  • chris cousens wrote:

What is the situation re CGT? It seems confusing that there is a 10% rate for small firms yet a flat rate of 18% for other sectors.
What is the implication for a buy to letter who has houses within the "small industry" sector by forming a nominal company and gets away with paying much less tax?

  • 14.
  • At 06:30 PM on 12 Mar 2008,
  • robert marshall wrote:

There was no sign of eating humble pie, and Labour's prime criteria of redistribution of wealth except for labour MP's is as true as it ever was.
Business will suffer as will the tax paying population.
10 years down the line and Labour have run out of spin and the guts to do the right thing for this Country.
Brown left an absolute mess and Darling has lived up to his reputation of fiddling, indecisiveness not knowing what to do.
We not only need a change of weather,we need an election to get rid of this incumbent shower who have economically crucified this country.

  • 15.
  • At 07:45 PM on 12 Mar 2008,
  • Peejay wrote:

In reply to Chris Cousens - that buy-to-letter has done a good job at arranging his business in an efficient manner. Well done him. Could you explain in what way the company is any more 'nominal' than any other small business?

I think, as he has made it a green budget, he may aswell have made it greener, well I certainly think he could have. Although I do find the fuel price rise quite annoying to an extent, it won't really help the environment much, what with a growing population, pollution will still increase at a rapid rate, as the population increase (that will purchase fuel) is probably greater than the number of people reducing the amount of fuel they use, I would have thought anyway. My hobby involves a petrol consuming vehicle as well, so I'm not looking forward to October onwards.

  • 17.
  • At 09:07 PM on 12 Mar 2008,
  • Ian wrote:

What a farce this climate change is. How lucky is New Labour to be able to hang any number of tax hikes on it, instead on their normal 'saok any idiot that can pay' label.
If they are so keen on stopping climate change, how are they going to prevent volcanos producing more ash/Co2 than all the cars in England?
Climate change started on Day 1 of the world and will end on the last day of the worled, whatever the Govrnment tax us.
Just stop using this pathetic excuse.

  • 18.
  • At 09:56 PM on 12 Mar 2008,
  • Donald wrote:

The only Budgetting that I see, is...... a Hooded Robin taking from the poor to give to the rich!

Those on low income pay more tax i.e. £12500 / year pay an extra £230.

Those retired Civil Servants, MPs etc on pensions greater than £34000, get an income increase of approx. £1800.

Looks like the poor will have to keep on Labouring

  • 19.
  • At 10:29 PM on 12 Mar 2008,
  • Joe wrote:

I find it strange that the Government has decided to borrow more (clearly destined to breach its' fiscal responsibility rule) at a time when debt is a bad thing to be acquiring in the real commercial World. Clearly in the unreal political World, anything goes because they know (like most company executives) that they are not going to be around to pay for their follies.

  • 20.
  • At 11:56 PM on 12 Mar 2008,
  • Rob wrote:

Having not voted since 1997, I cannot wait to excercise my rights and finally get rid of these incompotent fools.

  • 21.
  • At 11:56 PM on 12 Mar 2008,
  • Matthew wrote:

@5 - true, we higher-rate taxpayers are worse off to the tune of almost £500 a year from the change to NI thresholds. But at the same time the basic rate of tax is reducing from 22% to 20%, which actually gives us almost £800 extra a year. So the tinkering with these rates and thresholds leaves higher-rate taxpayers around £300 a year better off for it. Maybe that's why the response to the change to the NI threshold has been muted?

  • 22.
  • At 08:02 AM on 13 Mar 2008,
  • Susan wrote:

Darling's inherited the consequences of the Brown Project - un /economic growth and apparent prosperity based on unsustainable debt, cheap immigrant labour and cheap imported goods.
Now we've all got to pay for it - and yes, we're also financing the wars in Iraq and Afghanistan and the Northern Rock fiasco.

Waht a future!

Mr. Darling is certainly in the right place at the right time. He was the chap who took the rap for NuLabour's disastrous experiments with the railways culminating in the Potters Bar crash that killed a few people and traumatised a great many others !!

Now he's taking the rap for Gordon Brown-trousers' "economic miracles" that will (probably) kill a few and traumatise a great many others !!

Truly a professional scapegoat !!

  • 24.
  • At 12:18 PM on 13 Mar 2008,
  • David Simmons wrote:

As I neither drive in London during the week, nor park in Richmond, I'm rather chuffed to note that I can continue my habit of buying second hand large cars, which promise to be even better value for money as they fall out of bed depreciation-wise...

  • 25.
  • At 12:29 PM on 13 Mar 2008,
  • Shay wrote:

Robert,
At what point do Nu Labour call in the IMF

  • 26.
  • At 01:30 PM on 13 Mar 2008,
  • tony wrote:

chris cousens - re CGT, the 10% is available to business owners (not the company itself), and only for trading businesses. Property letting is NOT, for tax purposes, a trading business and therefore does not comply.
Get some professional advice if you need it!

  • 27.
  • At 03:20 PM on 13 Mar 2008,
  • tonyw wrote:

I see today that Livingstone will get a tax-free handout when he leaves. Completely incredible, we have no shortage of people who want to be politicians so why on earth should they get any sort of handout when they are voted out?
IMO politicians should be paid at most the average salary with no gold plated pensions etc.

  • 28.
  • At 05:08 PM on 13 Mar 2008,
  • Yummy Carol Kirkwood wrote:

Re: #3 irvtheswerv

Well it looks like the game may finally up for our communist government. After 9 years of fiscal incompetence (the first couple weren't bad at all)...


Correct me if I'm wrong, but didn't Gordon Brown stick to Ken Clarke's spending plans in New Labour's first 2 years of Government? Might explain a thing or two...

  • 29.
  • At 06:13 PM on 13 Mar 2008,
  • Michael Ginn wrote:

I am surprised nobody seems to have picked up on the sheer cynicism of postposing the petrol price increase till October. Why not September?

Well, if they did make it September, the consequences would be in the September RPI and so would be in the pension increase for April 2009. By making it October, the government will get revenue for nearly 18 months before it feeds into the pension in 2010, About then, we can expect the Tories to be swept to power and Labour can blame them for the problem Labour has created.

  • 30.
  • At 03:09 PM on 20 Mar 2008,
  • Ivan Mark Radhakrishnan wrote:

When are the police going to be called in.

The current financial lock-down is a deliberately caused catastrophe.

Our 'bankers', 'politicians', 'lawyers' and the scum of the earth are all wringing their hands wondering what went wrong.

Put these crooks in a cell and prevent them spending their ill-gotten gains. They know what went wrong.

This crisis is financial terrorism on a global basis. the 'bankers' should have known what they were doing and if they did not, how the hell were they employed in the first place?

Call in the police ....... NOW!

  • 31.
  • At 06:02 PM on 20 Mar 2008,
  • Roger Linn wrote:

Dear Robert Peston
Have you ever heard of Chicken Licken?

  • 32.
  • At 07:35 PM on 20 Mar 2008,
  • M Smith wrote:

Dear Robert,

For those of us who are ignorant about the greater complexities of the financial world, it would be great if you could take a moment in your blog to explain where the bank of England is able to get such huge amounts of cash to help the banks out.

Are they drawing on reserves that actually belong the country / tax payer or are they borrowing these amounts?

It does seem quite astonishing that there's never any money for anything else but no shortage of cash for the banks - who, let's face it, are only this mess because of their own greed.

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