The Economic Outlook
Inside Politics – The Policy Exchange newsletter (London), 14 March 2008
Before the Budget, there was widespread agreement around what to expect. It was to be a tight plan for difficult times with not much room for manoeuvre, let alone the opportunity of fiscal stimuli. This forecast was pretty accurate, but hardly anyone seemed to notice. Instead, the headlines were dominated by the Chancellor’s decision to increase so-called “sin taxes”, i.e. levies on alcohol and environmental pollution.
If the Chancellor intended to distract the public’s attention from even more unpleasant news than an extra 4p on the pint, he succeeded. But in the details of this year’s Budget we can see, for example, that the Government will be borrowing £43 billion – a figure which is £4 billion more than originally predicted and equivalent to 2.9 per cent of GDP. We can also see that the growth forecast has been reduced to between 1.75 to 2.25 per cent, down a quarter of a percentage point.
Given these sobering news, one would have expected headlines like “Darling cuts growth and raises borrowing”. Instead, attention was deflected to side issues, namely alcohol, car taxes and plastic bags.
In the long run, however, Mr Darling will not get away with such tactics. We should not be dependent on excessive borrowing while the economy is growing moderately. The Chancellor may have claimed that Britain was better prepared than any other nation to deal with a cooling world economy, but looking behind the headline-grabbing initiatives it is clear that the figures do not justify such smugness.