The pre-Budget report should have been the equivalent of a cask-strength Macallan, but it was more like a bucket of cold water – and we’re still heading for a hangover
Like many Scotsmen, I am much in favour of a stimulus at this time of year. The ability to look forward to a couple of strong stimuli around sevenish is invaluable in getting through the working day.
So it was with an open mind that I looked forward to the pre-Budget report on Monday. Alistair Darling, with whom I once exchanged warm words and cold tea on the picket line in my youth, was promising a bumper seasonal stimulus. The fiscal equivalent of cask strength Macallan was going to be liberally dispensed to all. The effect on the economy was, we were told, likely to be liberating.
You can imagine my surprise when the fiscal stimulus was unveiled. A temporary cut in the rate of VAT – by 2.5% – for a limited period, to be followed by rapidly increasing taxes as we try to pay off a trillion pounds of debt. In my experience of kick-starters this is hardly a vintage spirit-lifter – about as life-enhancing as a thimbleful of Bristol Cream from your solicitor before a discussion about how his costs will be covered for your bankruptcy proceedings. The most precious thing in the market at the moment is confidence – and that is just what the report failed to deliver.
We discovered that the national debt will double, to the point where the country’s balance sheet is as bad as it was in the seventies
Confidence in this government’s economic management took a battering when we discovered that national debt would double to the point at which the country’s balance sheet will be as bad as it was in the seventies, when we called in the International Monetary Fund (IMF). Confidence in our ability to weather this recession plummeted, alongside the pound, as we discovered that every independent body, from our old friends at the IMF to the European Commission, believed the downturn would be longer and deeper in Britain than in any other developed economy. Confidence that ministers knew what they were doing evaporated as we discovered that their principal tax measure was a hugely complicated, wildly expensive, all-too-temporary cut in VAT, instantly derided by major retailers as a wholly inadequate and likely to result in even higher costs on business in due course. No wonder Woollies and MFI gave up the ghost a few days later.
It’s not even as though all this jiggery-pokery on tax was matched by wisdom on public spending. Again, we were promised that the government would use its budget to help take up the slack in spending that the recession had caused. But the truly dire state of public finances – the huge size of the structural deficit we take into this downturn – means there just isn’t room for any significant budgetary boost. Indeed this government is actually trimming back projected spending increases.
At the last election Gordon Brown warned that the election of Michael Howard would mean future spending would be £35bn less. Actually he had the temerity to call this slightly slower rate of spending growth a cut. It was typically disingenuous – the equivalent of calling deceleration a reversal. Well, Brown himself is reducing projected future spending increases by £37bn – or as he would have it, he’s inflicting deep and damaging public spending cuts.
It’s not even as though all this jiggery-pokery on tax is matched by wisdom on public spending – There just isn’t room for a budgetary boost
So when you hear talk of Keynesianism in action, don’t believe it. I’d love it, for example, if we could see the Building Schools for the Future (BSF) programme accelerated so more secondary schools are built more quickly, but the government is looking for economies not increases in the Department for Schools budget. Also, the bureaucratic nature of BSF means we won’t see new secondary schools coming on stream any quicker than before. It’s in the nature of big projects where lots of planning, partners and pre-procurement work are required that you can’t click your fingers and magic them forward 12 months.
So what would the Conservatives do? We would change the rules on national insurance to make it easier to hire the jobless; we’d give real VAT relief to small businesses and we’d provide government insurance for bank lending to businesses to get credit flowing. All pro-active, pro-business measures. But what we won’t do is borrow recklessly to get out of debt. The lesson of past recessions, including the one Labour created the last time they were thrown out of office, is that massive deficits slow recoveries. They lead, inevitably, to bigger spending cuts and tax rises in due course, impeding a return to growth and inflicting unnecessary extra pain.
The stimulus the country really needs is a government committed to restoring sense to national finances and introducing pro-growth policies, from reforming land use planning to eliminating red tape. It’s just a pity the country will have to wait until well after Christmas for any sort of pick-me-up.
Michael Gove is shadow secretary for children, schools and families