The least enviable job in Britain

Apr 21 2009 by Sarah Green, The Journal

THE steepest decline in economic activity in decades. Accelerating unemployment. An alarming fall in tax revenues.

The need to borrow money on a scale that could all but double the issuance of gilt-edged securities in the next four or five years. And the prospect of a general election within the next 14 months. Alistair Darling surely has the least enviable job in Britain as he prepares to deliver his Budget tomorrow.

Government borrowing in the year just ended may have reached about £95bn – roughly £17bn more than anticipated in the pre-Budget report last November. In 2009-10, borrowing is likely to shoot up much higher.

So if the Chancellor of the Exchequer were to have a rush of blood to the head and let things rip on Wednesday, any short-term benefits for the economy would be more than offset by the real threat of higher borrowing costs and hefty tax increases in the years ahead.

That is why the governor of the Bank of England and the CBI have urged him to stick to “targeted and selected measures”. He needs to do something to help keep people in jobs. It would be sensible to support company cash flow, among other things, by plugging the gaps that have appeared in trade credit insurance and perhaps by time-limited increases in capital allowances.

That being so, the big question for Wednesday is about how candid the Chancellor will be about the medium-term outlook. He no longer has any formal fiscal rules to work from. They were blown out of the water by the impact of the recession months ago. Instead, he announced last November what he called a temporary operating rule, which would have the budget back in balance and debt falling as a share of national income “once the global shocks have worked their way through the economy in full”. The forecast implied that the happy day would come in around 2015-16.

So what is Mr Darling going to do? Does he think that the projections for public spending growth set out in the pre-Budget report – which even then looked very tight – can be shaved back enough? That would imply real cuts in many areas of government spending. Or are further tax-raising measures, on top of those already trailed in November, going to take the strain?

The UK’s public finances are now on an unsustainable path. As it climbs up the international league table in terms of the sheer scale of its public sector, the time has come for a serious debate about the size and role of the state.

Sarah Green is regional director, CBI North East