Budget Day +1
The only smile in the is to be found on a spider discovered in Hawaii -- apparently the markings on its back give it a grin to ward off predators. Chancellor Darling could have done with it to ward off today's headlines.
The headline is 'Alistair in wonderland'.
The shouts 'The return of class war'.
The has 'Darling's great squeeze'.
The is 'Darling gambles on growth'.
The says 'At least it's sunny', referring only to the weather.
The has a double entendre, 'Red all over'.
The highlights the breach of Labour's manifesto promise not to change income tax rates with the line 'That's rich!'.
The front page is stark: 'They've ruined Britain'
The rule of thumb is that a which is initially well-received is usually being rubbished by the weekend. So the will be crossing his fingers that the opposite is also true. But he shouldn't count on it. One thing is clear to me: this Budget may or may not mark the end of New Labour but it certainly marks the end of the Murdoch newspapers' dalliance with New Labour.
I'm in no doubt that The Times and the Sun are now going to back David Cameron at the next election.
I refer readers to my two post-Budget postings yesterday, by which I still stand. But here are some random thoughts on Budget Day +1.
1. Make me austere -- but not yet. The Chancellor is making great play of his squeeze in public spending. Someone even (ludicrously) described the as Thatcherite this morning. In fact, the squeeze doesn't happen till 2011, and even then it won't be cut -- just grow at a very slow rate (0.7% in real terms). Over the next two years public spending is actually projected to rise by another £38 billion, which means the good times continue to roll for the public sector (until the ).
2. Pass the rose-tinted specs, Darling. I commented yesterday on how the Chancellor might well be overly optimistic in his projections. He expects the economy to collapse by 3.5% this year, flicker into life next (1.25% growth) then rebound by 3.5% in 2011. But this morning the IMF says the economy will collapse by even more in 2009 (down over 4%) and still be in decline by in 2010 (down another 0.4%). That would make Mr Darling's 3.5% rebound all the more remarkable (some would say miraculous).
3. The Trillion-Pound Chancellor. If the IMF and most City economists are right about future growth prospects -- and the Chancellor wrong -- then his plans to borrow over £700 billion over the next four years (already an eye-watering amount) will be a serious underestimate.
Even at that level we as a nation will be paying more on interest to service the debt than we spend on defence or schools. But some City economists are predicting we'll end up having to borrow closer to £1 trillion, taking the national debt to over £1.7 trillion (or more than 100% of our annual national wealth) -- and that's possible, even likely, if all the off-budget items are included. Which raises a pivotal question: could the British government actually sell that amount of debt and hold on to its triple A credit rating. Don Smith, chief economist at , said at a City briefing last night: "There is a very high possibility of a serious buyers' strike". If that happens sterling will slump and international faith in Britain's prospects will be back to where it was in the 1970s.
4. 60%+ Britain. I've already commented on the new 50% top tax rate. In the cold light of dawn it turns out to be 60%+ for some. From next year, anybody earning between £100,000 and £112,950 will be hit by a marginal income tax rate of 60% as their personal allowance is removed; the real rate will hit 61.5% with national insurance. After that, the tax rate will fall back to 40% for a while ¬(41.5% with the new national insurance rates). Then after £150,000 it will jump to 50% (or 51.5% including NICs). So much, some will say, for simplifying the tax code -- incentivising the entrepreneurs the government says will lead us out of recession.
Perhaps this is why The Times says it's a "good Budget for Switzerland".
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