Pre-Budget Report gambles £20bn on borrowing

Nov 25 2008 by William Green, The Journal

THE North East was last night landed with a ticking tax bomb as Gordon Brown gambled £20bn on borrowing to save Britain from a painful recession.

Chancellor Alistair Darling unveiled a VAT cut from 17.5% to 15% from next Monday until 2010 but offset the measure with higher duties on fuel, petrol, alcohol and tobacco set to bring in £500m.

Last night, the Treasury’s own assessment of changes to VAT indicated it could cost business around £300m.

Mr Darling announced an increase in child benefit in January, three months early, and also said every pensioner would get a one-off payment of £60 – on top of a £10 Christmas bonus – at the same time.

Some £3bn of spending on infrastructure is also being brought forward, sparking calls to upgrade the A1, alongside U-turns on car tax, aviation and business taxes to boost the economy.

But Mr Darling confirmed tax hikes will pay for his gamble in his Pre-Budget Report with national debt set to break the £1 trillion mark by 2012-13 – 57.1% of gross domestic product.

The Treasury is planning 0.5% increases across the board in employers’ and employees’ National Insurance contributions. Families earning between £40,000 and £100,000 will be an average of £3 a week worse off by 2011 as they are pumped for £500m to replenish national coffers.

Mr Darling also announced a new 45% income tax rate from 2011 for those earning more than £150,000, and a phasing out of personal allowances for those on more than £100,000 – bringing in £3bn of cash. Public borrowing would rocket to £78bn this year and £118bn the following year, said the Chancellor.

He predicted the economy would shrink next year by between 0.75% and 1.25%, before bouncing back in 2010 with positive growth of 1.5% to 2%.

North East Minister Nick Brown said the Pre-Budget Report measures would support families, business and households in the region.

“The Government is determined that in these difficult times there will be no return to the mass unemployment that the North East has seen before,” he added.

Sir Alan Beith, the Liberal Democrat MP for Berwick, said the low-paid needed a serious tax cut – not a tiny VAT cut.

“Although the promise to spend on social housing is welcome, there is no optimism that there will be enough spent on social housing or transport in our area to make a real difference,” he added.

Peter Atkinson, Tory MP for Hexham, blasted the Pre-Budget Report and warned that people from policemen to nurses faced huge tax hikes.

The North East Chamber of Commerce said many of its concerns had been recognised, but said the Chancellor could have gone further over providing rate relief to empty properties.

Shadow chancellor George Osborne said that middle Britain would be hard hit by the largest amount of borrowing ever undertaken by a British government. “To pay for it he has placed a huge unexploded tax bombshell timed to go off underneath the future economic recovery,” said Mr Osborne.

He later claimed anyone earning more than £20,000 a year – most earners – would be worse off by 2012/13.

Liberal Democrat Treasury spokesman Vince Cable said: “What I fail to see is how the economy gets a major stimulus from, for example, a £5 cut in a £220 imported flat screen television or a 50p cut in a £25 restaurant bill.

“Surely it would be much more sensible to put money directly in the pockets of low-paid workers by cutting their income tax?”

Page 2: Public reaction could determine date for election