|Some Thoughts on the Pre-Budget Report
24 Nov 2008
By contrast, when George Osborne responded, he was supported with greater enthusiasm by his backbenchers.
There is a debate about whether we should borrow an extra £20 billion now, on top of the large and growing budget deficit. My view is that it is too much and it won't work.
I simply don't think that spending £12.5 billion cutting VAT is going to have the impact the Chancellor hopes for. As my question to him pointed out, many of the goods on which VAT has been reduced are imported so, to that extent, the benefit will be felt by manufacturers overseas. And the Chancellor will lose the full VAT on all the goods and services that would have been bought anyway. (What the Treasury used to call deadweight, when I was there)
And the figures that were banded about were huge - someone mentioned a trillion pounds of borrowing. People will say to themselves that the crisis is worse than they thought - so will they go out and spend? I am not sure. And who is going out to buy before December 1st, when the lower rate kicks in?
What will punters make of the £20 billion "fiscal boost", much of which is temporary, followed by almost £40 billion of announced permanent tax rises – that’s almost £1,500 for every family?
And can we rely on the Government’s growth forecasts, which are more optimistic than those of independent forecasters. If the recession is in line with external forecasters, and therefore worse than the Treasury forecasts, borrowing will be even higher.
One of the underlying problems is that the banks still won't lend enough; and, if they do, it is expensive. Gordon Brown commends to other countries the solution he has adopted here - re-capitalising the banks, and underwriting interbank loans - but so far it has not worked here. Businesses in North West Hants tells me daily that credit is drying up. Nothing I heard today will tackle this fundamental problem.
There is much talk about the decks being cleared for a spring election - after some of the benefits have been paid, but before we start paying for it. I don't see it.