Assessing the pre-Budget report

Assessed against Left Foot Forward's 5 red lines for a progressive pre-Budget report, Alistair Darling gets 66%. 45% said it was a "good" on a live poll.

Two weeks ago, Left Foot Forward set out our five red lines for a progressive pre-Budget report. Below, we assess each red line in turn and attribute marks out of ten.

Our preliminary assessment gives the pre-Budget report 33/50 i.e. 66 per cent. It is a good PBR in the circumstances but by no means an excellent report. Those who participated in the joint Left Foot Forward / TUC / Labour List / Liberal Conspiracy live coverage broadly agreed with 45 per cent saying it was a “good” PBR. A further 25 per cent thought it was terrible, 15 per cent said poor, 10 per cent said OK, and 5 per cent said excellent.

1. The PBR must make the Keynesian case for budget deficits


The Chancellor didn’t mention Keynes by name but he did say: “The choices are between going for growth or putting the recovery at risk.” He started his speech by saying, “Governments across the world have taken co-ordinated steps to deal with the biggest financial crisis for over half a century.” Alistair Darling also used the spectre of Japan’s ‘lost decade’ to say, “When Japan tightened prematurely in the 1990s it pushed the economy back into recession, making debt and deficits much higher, not lower.”

The policy decisions in the PBR amount to a £415 million fiscal tightening in 2009-10 followed by a £1,240 million loosening in 2010-11. The pain will then start to be felt in 2011-12 and 2012-13.

2. Any deficit reduction plan must be flexible and based on cautious growth projections


The Fiscal Responsibility Bill lacks flexibility and is based on optimistic growth figures. The PBR says:

“The Bill requires the Government to set out at all times a statutory fiscal plan for delivering sound public finances, to be approved by Parliament, and places a binding duty on the Government to meet that plan …

“The Government is setting a target, in secondary legislation enabled by the Bill, for borrowing to be 5.5 per cent of GDP or less in 2013-14.”

It is also based on projections that the economy will grow at 2 per cent in 2010-11 and 3.25 per cent in every year from 2011-12. These cannot be described as cautious and many are calling them “optimistic”.

3. The Government must outline how it will return tax receipts to at least 38 per cent of GDP over the medium term


Government receipts will return to 37.7 per cent of GDP by 2012-13 where it will stabilise. This is an increase of 2.4 per cent of GDP on 2009/10. This will come primarily from income tax (0.6 per cent), corporation tax (0.5 per cent), and VAT (0.4 per cent). National Insurance only makes up 0.2 per cent of this total.

The bankroll tax will bring in £550 million in 2009-10 but is a one-off measure so will not help increase tax receipts longer term. There were also no new green taxes prompting 
Professor Paul Ekins of the Green Fiscal Commission to say:

“Today’s Pre-Budget Report contained some welcome measures on promoting low-carbon technologies, but said nothing about the new green taxes or price of carbon that would help make them profitable. After the election taxes will need to be increased and increasing the proportion of green taxes is the best way to do this for both the environment and the economy.”

But as Richard Murphy says on his blog, there are a number of missed opportunities:

  1. No mention of a financial transaction tax – despite the promise in the papers that it was going to happen
  2. VAT increased instead of creating a bank debit tax and VAT is more regressive
  3. No extra tax on bank profits
  4. CGT not increased – and it should have been
  5. No tax on empty houses
  6. No General Anti-Avoidance Principle
  7. No serious extra restriction on allowances for the very wealthy
  8. No plan to end the domicile rule
  9. No plan to change the rules on corporate residence to stop companies leaving artificially

4. The PBR must help those most in need by finding the £4 billion needed to meet the 2010 child poverty target and protecting the labour market interventions already in place

2/5 and 4/5 = 6/10

The PBR did not announce the package of measures demanded by campaigners but it did find £140 million for free school meals, which will “lift up to an additional 50,000 children out of relative poverty”. It also found £700 million to uprate benefits including child benefit. John Dickie of the Child Poverty Action Group said, “[it] will lead to poorer families falling further behind and leave benefits well below the poverty line.”

The Chancellor also announced that the Government would use some of the £3 billion funding for Jobcentre Plus and employment programmes from the 2008 Pre-Budget Report and Budget 2009 to provide additional support for those adversely affected by the recession:

“This additional support includes bringing forward the young persons guarantee, so that 18-24s claiming Jobseeker’s Allowance for six months will now be guaranteed a job, work placement or work-related skills training.”

The revenue from the one-off bankers’ bonus tax will be used to pay for “help for the young and older unemployed to get back into work.”

5. Growth policies must be geared towards investment


Alongside securing the growth, the Chancellor made clear that his aim was to “promote long-term growth.”

On infrastructure, confirmation was given to a number of transportation schemes and a new body, Infrastructure UK was created to work on electricity markets, high speed rail, and broadband roll-out.

On social housing, the PBR announced no new money above and beyond the £460 million programme in the Budget but did announce that, “the Government will examine the scope for local authorities to borrow against revenues from new council homes, to support delivery of housing where this offers value for money, and will consider interactions with wider reforms to the council housing finance system.”

On green investments, there were a series of detailed new announcements including additional support for offshore wind projects and carbon capture and storage and demonstration projects. But the amount spent on the entire package to support green growth amounted to only £400 million over the next two years.

UPDATE 15.32

Tony Dolphin, fellow signatory to the red lines letter to the Telegraph, gives his assessment on Progress: “Good in parts but opportunities were missed for more fundamental reform.”

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8 Responses to “Assessing the pre-Budget report”

  1. Ben Cooper

    RT @leftfootfwd: 66% for Alistair Darling against our 5 progressive tests #NotBad

  2. Jonathan Taylor

    RT @leftfootfwd: 66% for Alistair Darling against our 5 progressive tests

  3. ippr north

    RT @leftfootfwd: 66% for Alistair Darling against our 5 progressive tests

  4. Daniel

    Re: the banker tax.

    Apart from the fact that it is particularly regressive, targetting a part of the economy which has paid for a huge % of the government spending over the last decade, and also aside from the fact that most banks will simply avoid it, there is another flaw in the plan.

    If you take the example that RBS were going to pay 1.5bn out in obnuesses this year. Tax that at somewhere between 40-50% and you *already* have exceeded the amount this windfall tax is meant to reap. Add in other banks, and this tax is doing damage to the UK’s balance revenues and balance sheet.

    A clear example of cutting one’s nose off inspite of one’s face…and of naked politiking. Surely I thought Labour were supposed to be governing in the best interests of the country.

  5. Theo Grzegorczyk

    RE: Free school meals.

    How does £140m pay for only 50,000 extra free school meals? Assuming a 189-day school year, and a 60p-per-meal cost (as per the Jamie Oliver plan), it should cover about 1.2 million children.

    Looked at the other way, 50,000 extra meals should cost an additional £5.7m on top of what we’re already spending.

    It looks as though £140m must refer to the new *total* spend, not the additional funding in the PBR.

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