Budget Battle Lines
It's 100 years since Lloyd George's People's Budget. Lloyd George established social insurance for ordinary people. Alistair Darling was forced to be more interested in providing social insurance for the business sector, and was forced to put the squeeze on the public sector to do it.
He had an unenviable task. The Chancellor had a Budget box full of bad news, baying Conservatives opposite and a glowering boss sitting behind. And the news was certainly very, very bad: catastrophic public finances, with net government debt set to hit almost 80% of GDP in 2013/14, twice the level Labour inherited in 1997. He could avoid neither tax rises or savage cuts. The already tight 1.1% annual growth figure for state spending further squeezed to an eye-watering 0.7% annual rate. David Cameron scored a point when he pointed out that for years Labour has warned that any reductions in public spending growth would hit vital services, and that today's cuts put "Gordon Brown on the wrong side of his own dividing line."
With the economy in the tank - GDP is now forecast to contract by 3.5% this year - Mr Darling was trying to be prudent, fair and - of course - political. He hoped the nervous City would welcome his honest acknowledgement of the costs of the bank bail out and by setting out in clear, red ink the borrowing required over the next four years: in total £600 billion. The initial reaction of the markets has been muted, which given the scale of the debt was mildly surprising. The danger is that the Government's projection for next year's upturn will prove to be seen to be too optimistic.
Darling was keen to be seen as fair. Those who had benefited most from the boom years should be expected to pay more to help us out of the bust. The decision to restrict the value of pensions tax relief for those earning more than £150,000 is a long overdue step towards a more level playing field in the taxation of pensions (the problem, for those who have had better things to think about is that you can claim tax relief at the top rate of tax, but only pay basic rate tax on the money paid out of the pension fund) - but raises only £100 million a year. The decision to push the 45 pence top rate up to 50 pence, and bring forward its introduction to next Spring rather than waiting until 2011. It is clear than £150,000 has become the point at which someone becomes 'super-rich' and therefore ripe for the taxing. Much will be made of this 50p top rate. Economically it is a modest measure, raising at best £1 billion a year. The point is the politics. But it worth remembering that Mrs Thatcher wanted to keep a 50p top rate - it was Nigel Lawson who persuaded her to go down to 40 per cent. In the circumstances, I suppose we might be glad there was any green investment: £1 billion for wind farms and improved energy efficiency.
The politics were fairly clear. Darling was trying to establish the battle lines for the next election. By hiking taxes on the rich, while increasing spending on child tax credits, extending help for the young jobless and for disabled children, Labour is trying to shift the argument away from how much has to be paid to who pays. This will alllow ministers to rehearse a favourite Brownite theme of the 'many versus the few'. The Conservatives will have to decide what to do about the new 50p rate - but if they've got any sense they will kick this question into the long grass.
Labour's narrative for the election is as follows: We're on the side of the majority, and we are doing whatever we can to get out of this internationally-driven recession while the Tories are the do-nothing party that still wants to protect their rich friends.
The Conservative story is, by contrast: Labour got us into this mess, they've saddled us with debt and they are trying to spin their way out of a corner. Labour governments always run out of money; and 'they didn't fix the roof when the sun was shining'. The team that got us into trouble are not the one to get out us out of it.
The election will be won be the party which succeeds in framing the debate on their own terms. Given the highly political nature of the budget, it starts now. It's game on.