News from the New Party

Pig in a Poke

The Budget is not quite the drama it used to be. The days of dramatic twists and turns are largely gone, and Gordon Brown's innovation of the pre-Budget report has made these events much more predictable. Even so, Alastair Darling's first Budget was exceptionally lacking in headlines. So in the 'headline' category there are two big points.

Everyone knew that the Budget was going to hit those who drive high-polluting cars; the only question was how much. The Chancellor revealed that the road tax for such vehicles would rise to £950 per year – less than the £2000 that some had trailed, but still a massive increase. It remains to be seen whether this will have much effect on the car market. With fuel duty going up by 2p per litre later this year, combined with the recent (and ongoing) rise in the price of oil, it may be enough to tip the balance further in favour of smaller cars.

The other headline was the rise in excise duties – 11p on a packet of cigarettes, 55p on a bottle of whisky and 4p on a pint of beer.

Taken together, with delays in introducing the car charges, the overall tax burden will not rise this year but will increase by £800 million next year and £1,800 million the next. That would suggest a political calculation, since the favoured date for an election is May or June next year, but equally it could be a miscalculation – the impact of new taxes will just be starting to be felt at around that time.

The real substance of the Budget can be found in what it tells us about the current economic situation and the state of the government finances. Tax receipts have been lower than expected, government borrowing will have to increase – by £7 billion to £43 billion this year – and there has been a downturn in the housing market and consumer spending. This is very bad news. The government can blame the state of the international economy and the 'credit crunch', but (as we have warned consistently) the spiralling of consumer credit and the huge increases in public spending have made us much more vulnerable to the effects of such downturns.

The economic growth figures for this year forecast just five months ago were scaled down, now standing in the range 1.75 to 2.25 per cent – low, but not unprecedented. What is truly surprising is the Treasury's confident assurance that the economy will be back on track thereafter, a scenario which is nothing if not optimistic. If the Treasury is wrong about that, there will be more pain to come.

The media like to assess Budgets in terms of whether it is a 'giveaway' Budget or an austere one. There is no such thing as a 'giveaway' Budget, of course – the government has to take money from us, or borrow against future taxes, in order to give it back. But this Budget certainly has a degree of austerity about it other than the traditional pumping of money to Labour's favoured recipients. That does not stop it being an electioneering Budget, incidentally, since the government may have calculated that announcing the pain now and delaying its impact is better than announcing it next year.

It is not this tax or that tax that is the problem, and not whether taxes are 'green' or not, but the overall tax burden that is far too high and is set to increase. These increases will happen even with the optimistic scenario that the Treasury is currently painting for next year. And if that optimism turns out to be misplaced, then what?

If Gordon Brown has any political sense, and we do at least credit him with that, he might wish to engineer a reason to hold the election sooner rather than later.