What we are looking for in the PBR
I am not sure that anyone much talks about Hugh Dalton these days. He was Labour’s Chancellor in the great 1945 reforming government and his time in office is probably best remembered for nationalising the Bank of England.
But it is the manner of his departure that has probably earned him his footnote in history. As Wikipedia puts it:
“Walking into the House of Commons to give the autumn 1947 Budget speech, he made an off-the-cuff remark to a journalist, telling him of some of the tax changes in the budget, which was printed in the early edition of the evening papers before he had completed his speech, and whilst the stock market was still open. This led to his resignation for leaking a Budget secret.”
This iron rule that you do not leak budget decisions went by the wayside many years ago, but yesterday’s and today’s newspapers are so full of what the Chancellor is likely to say this afternoon that the only question is whether there are going to be any big surprises.
Certainly the political lines now seem clear. There is going to be a big injection of funds into the economy, and Alistair Darling is going to call the Tories’ bluff by saying that there will be tax increases to come, but they will be on top earners, and only after the next election. This means that Labour can continue to honour its income tax pledge made at the last election.
But there is still much to learn this afternoon. The devil is always in the detail, and one should always be a tad suspicious of advance briefing as it has a habit of not being quite the full story.
Nor can we yet see the overall shape and balance of the package. There has been intense lobbying by interest groups in the run-up to the PBR. Every long-standing demand has been repackaged as an urgent and necessary way to beat the recession. The Chancellor will undoubtedly ignore much of the special pleading, but it is still not clear whether we are going to get a few big gestures or see the largesse spread around more thinly so that more sectors feel that they have got something out of today’s announcements.
In particular he will need to get the balance right between tax cuts and increases in public spending. Some on the progressive end of the debate have argued against any tax cuts as they will end up benefitting the Chinese economy. This has not been the TUC’s view.
While of course it is easy to show that a extra pound spent by the public sector on infrastructure creates more jobs than a pound in tax cuts, we need rapid action now to improve consumer confidence. Putting more money in the pockets of those most likely to spend it whether they be the low paid, pensioners or benefit claimants may well do more to break the recessionary expectations that threaten to make the downturn deeper and longer than it needs to be.
On the other hand the TUC has wanted to fund at least some of this boost for the low paid by taking more from the super-rich. Cutting down on tax avoidance would not breach a manifesto commitment, would be even harder to oppose and could start now to provide a bigger counter-recessionary war chest. Our proposals for minimum tax rates for those earning above £100,000 still look attractive.
Injecting more demand into the economy through tax cuts and spending even at the top end of some of the estimates around today will not however do enough. Today might not be the right occasion, but action to make credit cheaper and easier is also needed if the interest rate cuts are going to be effective.
Lord Mandelson has called the bank chiefs into a summit tomorrow. Our sense is that he sees getting credit moving is a top priority. If the banks have not done it through exhortation, then there may well be further action to come. This might be in the form of carrots like state backed loan guarantees or sticks in the form of direct intervention.
And of course we would hope that everything in today’s PBR will have a wider purpose than getting the economy moving again, vital though that is. The environmental imperative remains. The government is still bound by its child poverty pledges. The change in public mood following the collapse of the neo-liberal economic model gives government much more scope to intervene. In particular we need efforts to rebalance the economy away from an over-reliance on financial services.
So after that rather wordy preamble the questions that we will ask today can be simply put:
1) Is it a big enough stimulus to the economy?
2) Is it effectively targetted?
3) Will it help get credit moving again?
4) What’s in the detail?
5) Will the package not just counter recession but help build a better, fairer and more sustainable society?