1. The “trampoline recovery” theory is a fiction. To reassure the debt markets (on whom the UK government is now utterly dependent) HMT has concocted the theory of what Cameron brilliantly and instantly called the “trampoline” recovery. Darling says 3.5% growth in 2011, and in 2012 and in 2013. There is not a shred of independent corroboration for this. The independent forecasts, compiled by the Treasury itself (released two months ago) show 2.2% for 2011, then 2.6%, then 2.6% again. The public finances are based on a concocted figure of 3.25%.
2. It was either fake forecasts or spending cuts. If the Treasury had used consensus figures, it would have to admit that the tax base was never going to come close to covering the spending bill. That would mean admitting that the size of state spending was unsustainable, or risk a buyers’ strike/IMF bailout. But it is a very fragile lie, which I doubt will convince many in the markets. It means the hard work will have to be done by the Tories,
3. Austerity, my foot. Staggeringly, buried in the Budget is a figure showing that real terms state spending in 2009/10 will rise by a juicy pre-election 5.5%. Unless I am missing something is the biggest increase there has ever – yes, ever - been in the Labour years. The cuts in spending growth are happening in 2011/12 and beyond. So this is profligacy, disguised in the language of austerity. A graph below spells this out. And worst of all, I don’t think it is deliberate I think the Treasury has lost control of state spending.
4. The 50p tax is a con. If the IFS say a 45p tax on those earning more than £150,000 pa will raise “approximately nothing”, then a 50p should be a net drain on the Exchequer as even the Treasury will know. The IFS will have its say tomorrow, but I suspect they have since been leant on by the Treasury so they may row back. The idea of a 50p tax is made on the calculation that the George Osborne is so terrified of Gordon Brown calling him a rich kid that he would keep the policy in place – and watch those golden geese fly away rather than argue that high tax rates cost revenue. Remember, the last time the top rate of tax was 50% was 1987, when the richest 1% generated just 14% of the tax. When the top rate was cut to 40% by Lawson, this jumped to 23%. It proves that, to get the rich to shoulder a greater share, you reduce the tax rate. Osborne may still be too intimidated by Brown to risk having a debate like this on his own terms.
5. Huge upwards revision in unemployment. Last October, before Gordon Brown saved the world, the Pre-Budget Report had grim news: unemployment was forecast to rise to 1.41 by Q4 2009. So the “stimulus” was launched to take the edge of this. Result? We can see form Box C1 of the Budget: claimant unemployment is now forecast to be 2.09 million. It is a simply staggering rise which proves that the so-called “stimulus” stimulated nothing more than the debt burden.
6. Oh, and that debt burden. It's forecast to be £1.4 trillion by 2013/14 which is a massive, devastating upwards revision from the £1.1 trillion noted in the Pre-Budget Report. And, without spending cuts, it won’t be the last.
7. Darling has given up trying to balance the books. At least in the PBR he extended the horizon to 2014/15 to show when he would (on his dodgy forecasts) reduce the budget deficit to zero. Darling had to fight Brown for that one, as Brown didn’t want the public to see tight spending. But rather than a balanced budget, in 2014/15 we’re seeing the deficit fall to a mere 5% of GDP. And this is after spending growth is curbed from 1.1% to 0.7% which is a real-terms freeze. Even if Darling’s forecasts were true, we’re be looking at the end of the next decade before the UK balances its books.
9. A lot in this to rev up the Labour base. Brown can’t seriously believe any progress on child poverty can be made in a recession – it is, for various reasons, driven by the cycle. There is an element of post-McBride pitching to the Labour grassroots. But if the Tories don’t make a case against high taxation, and try to get Labour in a boxer’s clinch, then the Tory base may wonder why it’s worth getting out to vote if the policies will be the same. There is not just 50p tax, but the whole ‘safety first’ approach of the Tories. They should dismiss this Budget and its forecasts as an irrelevance and start with a clean sheet.