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Pre-budget report 2009 – two predictions
Posted by Tory Rascal (@toryrascal)
Wednesday, 9th December 2009
I’m no expert on economics, but since that doesn’t seem to matter when it comes to leading the Treasury, I see no reason why I shouldn’t offer two, probably terribly illiterate, predictions about this afternoon’s pre-budget report.
First: a vote-grabbing assault on the financial sector. Labour doesn’t care that a fifth of the UK’s economy is dependent upon wealth creation in the City – all it cares about is that an awful lot of people hate bankers these days. That is politically advantageous for the Government – if it can shift the blame for Britain’s economic woes away from a decade of wastefully profligate public spending, and towards an ill-understood and particularly wealthy sector of the economy, all to the good. So when Alastair Darling delivers his battle damage assessment this afternoon, that oft-touted windfall tax on bonuses looks like a safe bet.
It’s a bad idea, of course. Not only is a punitive one-off tax no way to remedy a much longer-term problem, but it will add to the impression that the UK is a bad place to be if you want to make money. After all, why try to make your fortune in a country where an irrational Government can punish you for it on a whim? The same goes for the ill-conceived 50% rate for higher earners – even Tony Blair thinks that’s a bad idea, and there’s plenty of evidence to show that high marginal rates can decrease tax revenues (see this excellent TaxPayers’ Alliance report for the details [opens PDF]). Punishing banks and bankers and chasing high-earners away from the City is a recipe for economic disaster. How can the Government rebuild the financial sector if no-one’s around to do business?
Second: an ambush for Defence. Of all Government departments, the MOD is the easiest to smash-and-grab; defence procurement has, under Labour, become probably the single most wasteful drain on the public purse, and few people outside Whitehall see the long-term value of new aircraft carriers or Trident. To many people, Defence exists purely and simply for fighting the war in Afghanistan: damn the future and whatever unforeseen wars it might throw at us. Unfortunately, the MOD – led by the hilariously useless Bob Ainsworth – lacks the political clout necessary to protect itself from short-termist cuts, so the RAF is already drawing up contingency plans to cut around 10,000 personnel and five bases, and the Royal Navy remains terrified about losing one or both of its new aircraft carriers.
The Government seems to forget that forcing the MOD to close bases has a hugely detrimental effect on local economies. Further, Defence is responsible for many thousands of jobs, and significant cuts to it will inevitably lead to higher unemployment. Hardly a good idea during a recession. But who cares? Defence is not, sadly, a vote-winner, so Labour can – and will – do as it pleases.
Oh, one more prediction – not a whisper of genuine protest from George Osborne. Weirdly, Labour can afford to run the economy into the ground, because it knows that the Tories won’t risk losing votes by defending wealth creators while they are as popular as swine flu. And, regrettably, I am not yet convinced that Osborne’s Treasury will be much friendlier to Defence than Labour’s. I’m sure there will be muttering about how benefits are disbursed to high earners and how Labour is putting off the worst cuts until well after the election, but I fear Team Osborne will want to play it safe.
Let’s wait and see…
