The 2009 Budget Speech was delivered by the Chancellor of the Exchequer, Alistair Darling, on the 23rd April 2009, slightly later in the year than normal, as the date had been pushed back to make room for the G20 London Summit which took place on the 2nd April 2009. It was one of the more eagerly awaited, or perhaps feared budgets of recent times, since Chancellor Darling was clearly faced with a deteriorating fiscal outlook, given that the United Kingdom's primary industry, banking, had fallen on hard times, with the world economy facing its deepest recession since the 1930s, and everyone was therefore keen to discover the extent of the pain to be inflicted upon the nation.
Squeezing the Pips
There was bad news for those that owned holiday homes, good news for those that owned ten year old cars but fancied a new one, and the customary bad news for consumers of alcoholic beverages, tobacco products, and road fuel. There was of course the usual talk of a crack-down on tax avoidance. But then it has always been thus, Way back in 1997 Gordon Brown thundered on in his first budget about how he would "not tolerate the avoidance of taxation" and how the Government would be "relentless in its war against tax avoidance". So relentless in fact, that twelve years later his successor was still able to promise that the odd billion or two could be raised by tackling tax avoidance. However the centrepiece of the Budget was the Chancellor's decision to raise the top rate of tax to 50%. This, together with the removal of "pension tax breaks" for the wealthy, coupled with the previous announcement of the withdrawal of personal allowances comprised what The Guardian described as "Alistair Darling's great financial squeeze on the rich".
This was cheered by some such as Polly Toynbee of The Guardian who was happy to see the Chancellor "soak the rich" or at least the "1.5% who earn over £100,000". (Although she quite neglected to inform her readers that she was one of them.) The Daily Mirror was of the same opinion and believed that the "Tax attack on rich is Darling's ace in pack". Others were not so enthusiastic, since not raising the top rate of tax (or indeed not raising tax rates at all) was one of the founding principles of New Labour, whose solemn pledge not to do so was first made in 1997 and duly renewed at both the 2001 and 2005 elections. In its leader The Times noted that just as "the birth of this pledge was symbolic, so is its death. With it dies Mr Blair's political project". The Daily Mail agreed, and described it as "a stake driven through the heart of New Labour". Elsewhere it was seen as a "return to class politics" in the Guardian or "class war" as the Daily Telegraph called it, as it denounced the move as "shabby cynicism" for which Labour would not be forgiven.
For his own part Darling defended the tax increases on the grounds of the "need to raise revenue". As he explained, "The amount of money we got from the banking sector, for example, that has gone down, and stamp duties, from housing. These receipts have gone down so I have had to take extraordinary actions, but these are, I'm afraid, extraordinary times". Here the Institute for Fiscal Studies (IFS) had already taken issue with Darling's previous tax increases on the wealthy that involved an increase in the higher rate of tax to 45% and the withdrawal of personal allowances. The Treasury claimed this would raise £1.6 billion. The IFS believed that it would be more like £600 million. Indeed, the IFS believed it was even possible that the net effect might be a loss of £160 million's worth of revenue, if those effected took every action possible to mitigate the burden of tax. A similar argument therefore arose regarding the additional measures announced in the 2009 Budget, although since it later became known that even the Treasury had taken into account what was referred to as "behavioural changes", and admitted that only 31% of the potential revenue would actually arrive in the Government's coffers, it was an argument over practice rather than principle.
The Times nevertheless regarded it as a "declaration of economic and political war on the country's entrepreneurial class", and over the following days a number of representative of the "entrepreneurial class" were on hand to express their dissatisfaction with this turn of events. This led to such headlines as 'Bra boss withdraws Labour support' on the BBC News website as it reported that Michelle Mone a "lingerie tycoon" and head of the "Ultimo bra empire" had told the Scottish Sunday Express that it was a "disgrace" and how she "used to be a Labour supporter but I'm not anymore". Much prominence was also given to the views of the actor Michael Caine who complained that he would "not pay the Government more than I get. No way, ever. So they've reached their limit with me. That's the lot." (And it didn't help that Caine's general view of the Government was that "they've gone rotten and they've got to go".)
Even worse, however, from the Government's point of view, was the revelation by the Daily Telegraph on the 25th April 2009 that former Prime Minister Tony Blair himself believed that it was all a "terrible mistake". The Telegraph's source was identified as a "friend of Mr Blair", which would be newspaper speak for Blair himself, not wishing to be directly quoted for fear of being accused of disloyalty. Confirmation perhaps, that the Blairite wing of the Party was now at odds with the Prime Minister arrived when Stephen Byers also offered his view that the tax changes would "make the UK less attractive", slow down "wealth creation" and "have negative consequences for public spending", and that it was nothing more than a "cynical" manipulation of the tax system.
All of which gave rise to the impression that they were measures that were less about raising money and more of a political manoeuvre designed to enable Brown to brand his Conservative opponents as the "party of the rich" should they promise to reverse the changes. As it was the Conservatives refused to bite and said that their priority would be to halt the 0.5 per cent rise in National Insurance contributions due in 2011.
Judgement Day
As it turned out, none of this really mattered that much. What did matter was the announcement of some extremely large numbers. There was confirmation that government borrowing for the financial year just ended would be a record-breaking £90 billion. Of more concern however was the forecast for government borrowing in the current financial year. Back in April 2008 Darling had informed the nation that the total would be £43 billion, then changed his mind in November and came up with a new figure of £118 billion. He now had reason to amend his forecast once more, and was now predicting that the Government would be obliged to borrow £175 billion in the 2009-2010 financial year, together with a similar figure to come in the following year. Thus the Government was planning to borrow more money over the next two years than the aggregate amount borrowed by its predecessors in the previous three centuries. (This was bad enough in itself, except that other economists such as Roger Bootle thought that a borrowing figure of about £230 billion for the coming year was more realistic.)
The other mind-bogglingly large number that came to light related to the fact that that the Government would have to find buyers for £220 billion's worth of gilts this coming year. This number was at least £20 billion more than the worst case scenario imagined by the financial markets and sent the pound tumbling on the foreign exchanges, or 'Pound hit as debt burden to soar' as the BBC put it.
All this was bad enough but it soon became apparent that there were a number of big problems with these very big numbers.
The first problem was that they were based on Darling's belief that the economy would rebound in 2011, and that economic growth would eventually drag the country out of the deep, dark fiscal hole it was now occupying. Specifically the Treasury was forecasting economic recovery in 2010 with growth of 1.25%, followed by a "supercharged recovery" of 3.5% per annum thereafter. Given that the so-called trend growth for the United Kingdom was generally regarded as being in the order of 2.25% to 2.75% the Treasury's projected growth figures were, as one journalist put it, "at the top end of the possible", or more likely "beyond the top end", as in probably "not going to happen".
Indeed within half an hour of the conclusion of the Budget speech, the International Monetary Fund (IMF) issued its own forecasts for the UK economy which were notably less optimistic, with a 4.1% contraction predicted for 2009 and a further 0.4% fall in GDP in 2010. (When later asked to explain the discrepancy, Dominique Strauss-Kahn, the Managing Director of the IMF explained that it was "absolutely normal" for governments to "try to rebuild confidence" by picking the most optimistic numbers they could think of.) Then on the 24th April the Office for National Statistics issued its latest bulletin on GDP Growth which reported that GDP had fallen by 1.9% in the first quarter of 2009; a significantly worse figure than the 1.6% used by the Treasury in its overall prediction for 2009. It was therefore concluded by those who make a study of such things that it would be next to impossible for the economy to achieve the target set by Darling, or as Andrew Grice wrote in The Independent on the 25th April, "Rarely has a Budget gone off the rails so quickly".
The second problem was that, whilst Chancellor Darling might have felt it unnecessary to draw attention to his projected expenditure figures during his address to Parliament, buried away in the Budget Red Book was the information that he planned to cut public expenditure from 2011 onwards once the recovery was under way. Even the likes of Polly Toynbee were able to work out that this laid out the "full horror of what is to come", as by 2011 the "cuts will be savage" and that they were "harsher cuts than any in living memory - yes, worse even than in the Thatcher 1980s". The Institute for Fiscal Studies explained how the Government would be obliged to spend more on both debt interest and benefit payments to the ranks of the swelling unemployed, which would leave less money available to spend on other things, such as public services, which would therefore be subject to outright annual cuts of 2% after 2011. Assuming of course that Mr Darling's growth assumptions were correct.
Not with a bang but a whimper
The BBC summarised the general media consensus, "There is an overwhelming sense that Alistair Darling's Budget has fallen short of what had to be done". Only the ever-loyal Daily Mirror could find be relied upon to applaud the Budget, which it claimed was "Just the job". Elsewhere The Independent's leader bore the headline 'A Budget for the short term, paid on the never-never' whilst Jeremy Warner described it as a "bogus Budget that ducks the inevitable pain of spending cuts", and "was one of the most unconvincing and wrong-headed" budgets of recent years. The Times called it 'A Budget for the short term, paid on the never-never' and billed it as 'The avoidance Budget' and wrote of how "Yesterday was a moment for a sober account of how the public finances could be restored. Alastair Darling failed to rise to the occasion". It was a similar story in The Financial Times where it was noted that, faced with a "wide and deep chasm" to cross, Darling "had only the materials for a short and rickety bridge" to reach the other side, whilst the Daily Express concluded that the nation was "hurtling towards bankruptcy at breakneck pace".
Anne Redston, a visiting Professor in tax law at King's College, London wrote for the BBC News website under the headline 'The big hole in the 2009 Budget' and noted that whilst there were "crumbs of tax relief scattered through the Budget's pages", what she referred to as the "big taxes", that is VAT, income tax, national insurance and corporation tax, "were largely untouched" by the Budget. She therefore concluded that the "most important part of this Budget is what is missing" and that the "absence of any major increase in taxes will simply defer the pain". The Sun's editorial spoke of "terrifying debts" which it blamed on "Labour's refusal to cut wasteful spending" and of how the "battle lines for next year's election" were now clearer. It didn't quite ask its readers to 'Vote Conservative'; but it might as well have done.
The truly awful truth sank in on the following day as an analysis of the Treasury's plans showed that around half of the £90 billion of the additional tax receipts assumed to arise for the next five years could not be accounted for. (Which was to say that some new, and previously undisclosed, taxes would be needed to generate the funds.) As Hamish Macrae explained in the Independent, the Government would therefore either have to cut spending or to put up taxes by more than it currently planned to do, and whilst you could have an argument about the balance between the two, to pretend that there was no such choice to make was nothing more than "deceit and dishonesty".
This is what the Daily Mail of the 24th April referred to as "Darling's secret tax bombshell" as it claimed that this "black hole" which would cost each and every families £2,800 a year for each of the next ten years. The Guardian ran the headline 'Deepest spending cuts since 70s to fill '£45bn hole'', whilst The Independent heralded 'Britain's new age of austerity - Huge tax rises and spending cuts: the true cost of the Budget revealed'. Or as Robert Chote the director of the Institute for Fiscal Studies put it; the extant of the damage to the nation's finances were such that it would "require two full parliaments of mounting austerity to repair".
Here and there, a note of sympathy was struck for Alistair Darling. As Michael White noted in the Guardian, Darling had been obliged to "steer a discreet, middle course" as he grappled with the "awkward inheritance he received from the one man he can't blame". Indeed according to the Daily Mail of the 25th April Darling had wanted to "include aggressive cuts in public spending" in his Budget projections in order to demonstrate that he did indeed have an idea of how to balance the books, but was over-ruled by Gordon Brown who feared that this "would lead to disaster at the next Election".
The general conclusion was that the whole Budget was nothing more than a stalling tactic; budget that would enable the Government to get to the next election with all the truly hard decisions deferred until later when, of course, it was perfectly possible they would be somebody else's problem entirely.
The nation was left with the overwhelming sense of the end of an era as it became clear that the entire New Labour project had now run aground. The British Economic Miracle had turned to dust, the cupboard was bare, and all the money was gone. As Tom Clark wrote in the Guardian on the 24th April, the "defining purpose" of New Labour had been "fixing the battered public services it inherited", but nevertheless it would now "end its third term by pencilling in deep cuts for years on end"; as he put it, "It was never meant to end like this".
RIP New Labour.
Born 21 July 1994; died 22 April 2009.
Cause of death; drowning in a sea of debt.
New Labour passed away surrounded by its family and loved ones.
It was survived by a shattered party.
Memorial service scheduled for May 2010.
No Flowers.
Lance Price, Downing Street deputy press secretary under Tony Blair
The new Labour project feels ... like a field harvested to stalks by combine, then its hedgerows gleaned.
Picked clean, nothing left.
Now what it needs is to be burnt, for the nutrients to return to the soil.
No one wants to look upon barren, blackened earth, but how else will the green shoots ever return?
Janice Turner, The Times, May 2, 2009
SOURCES
Sourced from various reports in the British media including inter alia;
- Papers moved over Darling, 23 April 2009
http://news.bbc.co.uk/1/hi/uk/8013717.stm
- James Lyons and Jason Beattie, Budget 2009 spells a return to bold Labour, Daily Mirror, 23/04/2009
http://www.mirror.co.uk/news/top-stories/2009/04/23/budget-2009-spells-a-return-to-bold-labour-115875-21299605/
- Ashley Seager, Budget 2009: Experts cast long shadow over Darling's sunny outlook, The Guardian, 23 April 2009
http://www.guardian.co.uk/uk/2009/apr/23/budget-darling-shadow-outlook
- Jeremy Warner: A bogus Budget that ducks the inevitable pain of spending cuts, The Independent, 23 April 2009
http://www.independent.co.uk/news/business/comment/jeremy-warner/jeremy-warner-a-bogus-budget-that-ducks-the-inevitable-pain-of-spending-cuts-1672804.html
- Hamish McRae: Age of New Labour draws to a close with deceit and dishonesty, The Independent, 23 April 2009
http://www.independent.co.uk/opinion/commentators/hamish-mcrae/hamish-mcrae-age-of-new-labour-draws-to-a-close-with-deceit-and-dishonesty-1672792.html
- Tom Clark, Rise of the state under New Labour is over. Prepare for the fall, and it will be dramatic, The Guardian, 24 April 2009
http://www.guardian.co.uk/uk/2009/apr/24/new-labour-state-public-spending
- Nicholas Watt, Labour warned budget spending cuts will wipe out decade of growth, The Guardian, 24 April 2009
http://www.guardian.co.uk/uk/2009/apr/24/budget-labour-public-spending-cuts
- Glen Owen and Brendan Carlin, Even Darling thinks his Budget doesn't add up, Daily Mail, 25th April 2009
http://www.dailymail.co.uk/news/article-1173547/Even-Darling-thinks-Budget-doesnt-add-relations-Brown-hit-time-low.html
- Bra boss withdraws Labour support, BBC News, 26 April 2009
http://news.bbc.co.uk/1/hi/scotland/8019075.stm
- Patrick Wintour, Labour's Byers attacks 'cynical' tax rise to 50%, The Guardian, 28 April 2009
http://www.guardian.co.uk/politics/2009/apr/28/stephen-byers-50-percent-tax