Radical changes to way North East is run

Nov 26 2008 by Adrian Pearson, The Journal

Analysis
by William Green Political Editor

GORDON Brown's extraordinary £20bn programme to fight the recession is designed to pay for tax cuts, support business and bring £3bn of spending forward for infrastructure projects.

VAT is falling from 17.5% to 15% from December 1 until 2010 to get Britain shopping, but its impact is questionable with retailers already offering massive discounts.

And it could cost firms around £2,250 and nationally £300m to implement the VAT changes.

Taxes will rise to pay for a public borrowing splurge with national debt set to reach £1 trillion within a few years.

Across-the-board hikes in national insurance contributions from 2011 have been branded a "tax on jobs" as it will become more expensive for firms to hire workers.

The public sector will also have to find £5bn of efficiency savings. That could be an opportunity and a curse for the region with thousands employed by the Government in the North East, which is cheaper than London.

But there is the possibility of public spending being squeezed and even cut in some areas in future years as tax revenues collapse.

And despite hopes of a regional roads' boost, the Department for Transport will assess how best to target areas of greatest need with regeneration spending also becoming more focussed.

Ministers have also promised to help the housing market, although one expert has warned no new money is available.

North Tyneside, Stockton, Darlington and Middlesbrough councils have joined a £200m Government scheme under which people can sell part of their home and rent the other part.

North East Minister Nick Brown said the Pre-Budget Report would help the region through a recession.

The report warns the North East's economic growth of 22% between 1997 and 2006 will be "interrupted" by the global downturn, with construction and financial services worst hit.

Regional unemployment has risen by more than 1% since the start of the year.

The region has 3.6% of its adult workforce claiming jobseekers' allowance, although that is below the 9% rate in the 1990s and employment remains near record highs.

"You have to see the package in the round not just take one element of it.

"The overall package is designed to save jobs and to create employment," said Mr Brown.

But he stressed it had to be paid for with exceptional times needing an exceptional response.

"Our intention is to return to the prudent fiscal discipline that has served us well over the past decade," he added.

Mr Brown insisted the VAT cut would have a positive impact along with a one-year tax holiday on 70% of empty business properties - although the North East Chamber of Commerce warned it did not go far enough.

Senior CBI member Hugh Morgan Williams, chairman of the Washington-based Canford Group, said the VAT cut was a "drop in the bucket" and questioned whether major infrastructure schemes could be brought forward.

He warned rises in national insurance contributions - paid by workers and firms - would make it more expensive for firms to hire staff.

"It is like sailing into the sunset knowing a hurricane is going to hit you in six months," he added.

And a showroom car tax of up to £950 will be introduced in 2010 despite manufacturers like Nissan in the North East suffering a car buying slowdown, although other vehicle duties have been softened.

AA president Edmund King said: "Gordon's short-term tonic for motorists, whilst welcome, is not enough to bring the fizz back to the used and new car market."

He added the VAT change would cut prices with a family vehicle like a Ford Focus 1.6 petrol Zetec dropping by £338, but would probably be insufficient without other incentives such as a scrappage scheme.

The Chancellor was accused by Mr King of "playing roulette" with fuel prices by cutting VAT but offsetting that by raising duty, leaving the Treasury increasingly better off.

Newcastle Airport has warned about the impact of "considerable" increases in air passenger duty - particularly for long-haul travellers.

More than 3,000 people work at the airport, which injects £400m into the regional economy annually and provides vital business links.