A PACKAGE today for economic recovery? Pull the other one. Such has been the reaction to the Chancellor's latest assessment of the UK economy that sterling fell yesterday to its lowest level against the dollar since 2006, to a 12-year low against a basket of major competitor currencies – and to a record low against the euro. Remember when chancellors were meant to talk up our prospects, not talk the pound down?
In the aftermath of Darling's interview with the Guardian, and subsequent backtracking on what it is he really meant to say, let's set out his position on the economy this year (so far). First, this, from the Budget speech:
"Because of the chan
ges made by this government to entrench stability and increase the flexibility and resilience of our economy, I am able to report that the British economy will continue to grow through this year and beyond. This year my forecast is that – as growth in the world economy slows further – growth in the British economy will be between 1.75 and 2.25 per cent in 2008... I expect growth to shift towards companies and exports with growth rising to 2.25 to 2.75 in 2009 and 2.5 to 3 per cent by 2010."
But the Chancellor now argues that the economic times we are facing "are arguably the worst they've been in 60 years... And I think it's going to be more profound and long-lasting than people thought."
Some have taken this to mean that the economy itself will be the weakest for 60 years. But what the Chancellor is saying is that the economic challenges (credit crunch, mortgage famine, oil price surge, soaring energy bills etc) are the greatest for 60 years.
But even this assessment – that the present economic challenges are greater than those which triggered the recessions of 1974-5, 1979-81 and 1990-2 – is a marked shift from his Budget speech. It has to be – to explain the big difference in the Chancellor's second go at the "Guess the 2009 GDP " dartboard. The budget "dart" of 2.25-2.75 per cent growth is likely to be replaced by a sharply downgraded 1 to 1.5 per cent. That may prove sanguine.
As astonishing was the Chancellor's admission of how he first discovered the extent of the credit crunch – when he read about it in a newspaper last summer. "I remember I picked up the Financial Times in the supermarket, as you do, and it had the European Central Bank starting to pour money into the economy. I phoned the office to ask why they were doing quite so much... it was the sheer scale of it."
You might well have thought that the "sheer scale of it" (sic) might have prompted Treasury officials to have rung the Chancellor when markets started to slump, or perhaps the Bank of England could have rung him, or even the screen-watcher at the Financial Services Authority. But no vignette better illustrates how the government was so out of touch in a crisis that was to culminate in the collapse of Northern Rock. Quite frankly, if you're the Chancellor in the middle of the worst financial crisis for 60 years you should surely be a little more plugged-in than simply buying a newspaper.
As for the particulars of the "economic recovery package", it may be prudent not to expect too much from a government facing a Budget deficit hurtling towards £55 billion this year and £80b in 2010-11.
Likely measures include help for local authorities to buy repossessed and unsold properties, a boost for shared-ownership schemes and more support on mortgage payments for those made redundant. Gordon Brown is also hoping to announce a scheme by which the energy companies will provide him with funds to pay about £1bn to targeted households to help meet soaring bills.
This is not, in any sense, an "economic recovery package". It is a set of small, politically targeted measures to soften the double blow of rising inflation and a sharply slowing economy. The government cannot credibly reliquefy the mortgage market without a reckless exposure of the taxpayer to a market that is still falling..
The blunt truth – one that neither Brown nor the Chancellor are likely to admit – is that real household incomes are going to fall, mortgages will continue to be scarce and that, in Charles Goodhart's reckoning, there will be little recovery before 2010.
The credibility of the government is shot to pieces. Little wonder Alex Salmond could not resist poking fun at a Chancellor who has moved in short order from being Corporal Jones to doom-monger Private Frazer.
But the FM needs to take care. While the SNP's long-standing policy commitment of slashing Corporation Tax looks more pertinent and sensible by the week, the claims that "Scotland is faring better" are blind to the severity of the downturn in housebuilding and financial services, to the disturbingly large proportion of rural Scots suffering fuel poverty – and to credibility problems of its own.
The Scottish Government needs to improve the depth and quality of its economic statistics, and their timeliness. In the meantime we're stuck with a PM and a Chancellor who need a miracle to regain public confidence. That slide in the pound says it all.
