Figures leave little room for manoeuvre

GORDON Brown's decision to delay the general election is now creating the most almighty of headaches, coming as it does on the back of a credit crunch and housing downturn.

Alistair Darling, the Chancellor, claims that Britain is now strapped in, ready to ride the rollercoaster that is the global economic turbulence.

In reality, it was the most difficult Budget a Chancellor had to deliver in the 11 years Labour has been in power.

Against a gloomy economic climate, this was not a Budget stuffed with pre-election bribes. But more puzzlingly, the forecasts are due to get even worse if the Treasury's own projections are reliable.

Even senior opposition MPs struggled to glean when the Prime Minister would finally fire the starting gun.

A closer look at the "Red Book" reveals that if things are bad now, they are only projected to slide over the next two years – within which Mr Brown must call an election.

In his Budget statement, Mr Darling was forced to cut growth forecasts made only five months ago, downgrading them from 2-2.5 per cent to just 1.75-2.25 per cent this year.

In previous years, Mr Brown always had the last laugh when somehow his economic growth forecasts would turn out to be correct, despite warnings that they were overly optimistic. No such luck for Mr Darling.

The independent Institute for Fiscal Studies said Mr Darling had delivered his Budget "with fingers crossed".

"If the downturn is deeper than expected, if he is over- optimistic about the underlying strength of tax revenues, or if political pressure requires further giveaways, then Mr Darling or his successor may have to inflict more pain," it said.

The Chancellor has also left himself with little room for manoeuvre on debt. If Treasury forecasts are just a tiny bit out, he could break one of the two economic rules: on sustainable investment. This rule decrees that net public debt can be no larger than 40 per cent of GDP.

In fact, the estimate for this year is already 37.1 per cent, and it is to rise to 38.5 per cent, 39.4 per cent and 39.8 per cent for the next three financial years.

Then there is the issue of taxation. Due to his downbeat estimates for this year, Mr Darling believes the government will take in £140 million less in tax in 2008-9. But by 2009-10, the tax take is set to rise to £790 million and to £1.86 billion in 2010-11 on the back of more optimistic forecasts.

This is a bold estimate in the face of American forecasts that the global economic downturn will last for at least 18 months and is far worse than anticipated just a few weeks ago.

It is the prerogative of every government to present the figures in as positive – or at least neutral – a light as possible.

But one table that is more difficult to manipulate is the so-called treaty debt. This refers to the criteria applied under international standards by the Maastricht treaty. It forces the Treasury to include short-term assets in its debts. These figures show public sector net debt spiralling from £574 billion to £728 billion by 2009-10 – when a general election could take place.

The figure is believed to include the controversial Private Finance Initiative and Public Private Partnership projects, which normally the government can exclude from its balance sheets.

If the Chancellor's words are to be taken at face value, Britain is the most stable economy in the G7, with lower unemployment than France, Germany and Italy.

But what he does not say quite as explicitly is how the level of debt is, proportionately, the largest in the world except for Hungary and Japan.

It is perhaps little wonder that the Chancellor put the emphasis on more eye catching, consumer driven measures.

The range of "sin taxes" are meant to punish drinkers, drivers and polluters.

Government sources insist they are not meant to be "moralistic" taxes but are a tactic to raise tax receipts at a difficult time.

The money from the rise in vehicle excise duty, alcohol taxes and fuel will go on trying to meet the already faltering child poverty targets.

Mr Darling said: "This is a responsible Budget to secure Britain's stability in the face of global uncertainty."

But David Cameron, the Tory leader, has insisted Britain is not well equipped to battle the economic storm: "As this country enters troubled times, it could hardly be worse prepared.

"We have the highest tax burden in our history, we have got the highest budget deficit in western Europe."

What Mr Cameron failed to do was spell out exactly what the Conservatives would do differently.

Indeed, the figures could be so bad at the time of the next election that the Conservatives are also prevented from offering the "magic tricks" that were so lacking from the Budget.

'THERE IS NOT MUCH IN THIS BUDGET FOR OUR FAMILY'

MANAGEMENT consultant Jeremy Roebuck lives in Haddington, East Lothian, with his wife, Valerie, and daughters Phoebe, 13, and Caitlin, 15.

The 49-year-old was not impressed by the Budget. He said: "There's not much in it for us. The increase in child benefits will make a little bit of difference, but really next to nothing."

The biggest disappointment is that the Chancellor did not do more to help the environment.

He said: "Although I drive and my wife has a car, I think he really should have put the 2p on fuel now or as a compromise put a penny on now and a penny in October."

Income tax changes will be welcome, as Mrs Roebuck works part-time, but they are likely to have only a small effect on the family finances.

Moves to help professionals such as teachers to buy homes received his support, but as his daughters are still young it will not have any benefit for them in the short term. He said: "It's really too far away to think about, but I guess anything that helps key workers get on to the property ladder is a good thing.

"I would like to have seen him do more for the environment, but really it seems to be a steady-as-she-goes Budget."