That's Another [Pounds Sterling]118bn Mess He's Got Us Into
Byline: WILLIAM REES-MOGG
One of the most agreeable privileges of belonging to the House of Lords is that one can listen to any of the great debates in the House of Commons.
Since the glass security screens were put up, the Lords' Gallery has been moved to the left-hand side of the Speaker; this allows one to see the Government Front Bench but obscures one's vision of the Opposition.
However, last Monday, I had a good view of Alistair Darling's Pre-Budget Report. He laid out the Government's plan 'to protect and support businesses and people now, while putting the public finances on the right path for the future'. The question is whether his plan can achieve his objectives.
The Government strategy is based on big borrowing now and bigger tax increases later. As an immediate stimulus to the economy, VAT will be cut tomorrow from 17.5 per cent to 15 per cent and will be held at that rate until the end of next year, at a cost to the Government of about [pounds sterling]12.5billion; the total cost of all the stimuli announced will amount to [pounds sterling]20billion.
Neither Shadow Chancellor George Osborne nor Liberal Democrat Treasury spokesman Vincent Cable accepted the cut in VAT would have a significant impact on the most serious recession Britain has suffered for generations.
Other countries, including America and China, are reflating on a much larger scale. Mr Cable was dismissive: 'What I fail to see is how the economy receives a major stimulus from, for example, a [pounds sterling]5 cut in the price of a [pounds sterling]220 imported, flat-screen television or a 50p cut in a [pounds sterling]25 restaurant bill.' Osborne pointed out that the Chancellor's package 'means that he is giving [pounds sterling]20 billion and taking back [pounds sterling]40 billion in higher taxes. He is going to double the national debt to [pounds sterling]1trillion.' If one accepts the view of the Tories or the Lib Dems, one has to conclude that not only will Darling's stimulus be inadequate but that his increase in the national debt will be a heavy burden on future generations and, perhaps, a long-term cause of inflation.
The Chancellor's speech raised my own scepticism about the Government's plan. There was one passage that seemed incredible even when one first heard it, and becomes even more incredible at a second or third reading.
' Borrowing will rise to [pounds sterling] 78billion this year and [pounds sterling] 118billion next, or eight per cent of Gross Domestic Product. But then, from 2010, as I take action to reduce borrowing when the economy begins to recover, borrowing will fall to [pounds sterling] 105 billion, then [pounds sterling] 87billion, then [pounds sterling] 70billion, and then [pounds sterling] 54billion. By 2015- 2016 we will again be borrowing only to invest.' I do not know why Mr Darling thinks that he will still be Chancellor after 2010. It seems unlikely on any grounds. There is a rule in financial forecasting that the further ahead forecasts are extended, the higher will be the probability that they will be wrong.
Journalists may write entertaining articles projecting future trends - they may even have interesting insights. …