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Friday, April 24, 2009 

The budget aftermath.

As always happens with budgets, regardless of the party or the individual who delivers them, within hours they begin to unravel. No can genuinely envy Alistair Darling his task, except perhaps for Ed Balls, and there is much to be said for Darling's apparent calmness and unflappable nature, one of the very few to be around since 97 to not have become in some way tarnished by the travails of office. Such were the constraints on what any chancellor could have done given the circumstances, he did pretty much all he could, knowing full well that extensive cuts or extensive tax rises would doom his party to certain defeat. In perhaps the only comment that might be remembered, apart from the 50p rise in income tax for those earning over £150,000, he was clear that you cannot cut your way out of a recession. That much is obvious.

Likewise, his predictions that the economy would shrink by 3.5% this year, recovering to 1.25% growth next year and then growing at 3% plus afterwards were marked not so much by their infeasibility, but that he had to be optimistic for political reasons. Surely, for Labour to have any chance whatsoever of winning a fourth term next June, the economy needs to have began to recover by the turn of the year, at which point the government can say that they were right to be optimistic, to not have to wielded huge cuts so quickly, instead waiting to see if the fiscal measures taken had begun to work and that even though they may have wrong about many things, they were right when it really mattered. For there to be any chance whatsoever of this fantasy scenario becoming reality, today's GDP figures needed to be bang on the predicted 1.5%, or even better lower, reflecting the slight encouraging signs which some have suggested have started to become evident. Instead the drop was 1.9%, which means that it only needs a further drop of 1.6% in the second quarter, certainly not out of the question, for Darling's predictions to be already ruined.

Those figures, it should be noted, are provisional, and based only on the first two months' activity, meaning they could be revised both downwards or upwards, as the last quarter of 2008's were. Nevertheless, we have to go back to the third quarter of 1979 for worse figures. For all the hyperbolic, ridiculous talk of returning to the 70s this week, on this measure the analogy is undeniable. Add into the mix that the Institute for Fiscal Studies believes there's a £45bn hole in the budget, almost certainly to be filled by savage cuts to spending rather than tax rises, again the most severe since the dreaded decade, and the bleakness seems to be all enveloping.

For all the accusations flying Darling and Labour's way regarding dishonesty, as usual they cut both ways. No one can begin to pretend that Wednesday's budget was inspiring; it was rather all that could have been expected. Although putting off the real pain until after the election is pure politics, it's also the right thing to do. The same is the case with the 50p top rate of tax: it won't raise much, but it is equally absurd to call it a "return to class war", and not just because under Thatcher for a long period the rate was even higher. It is undeniable that an over reliance on the City, the laissez-faire attitude towards financial regulation, and New Labour's sickening sycophancy towards the filthy rich are the main causes of the current crisis. The public sector did not create this disaster; the private sector did. True, if Brown hadn't borrowed so much during the good times, we would not currently be facing such a monumental deficit, but we would almost certainly be facing a recession regardless, probably one only slightly less severe than the one we're experiencing. Things could be even worse if the Tories were in power and had carried out their promises to even further slash regulation, and as Stephanie Flanders points out, the last election was fought over little more than £12bn in public spending. That's a drop in the ocean to the amounts we are now boggling over. Even if it is purely a symbol, as Shuggy and Chris agree, the 50p rate is perhaps what the country wants to hear right now. You can argue about the unfairness of that, or the precedent it sets, but not the motivation.

For all the impressive rhetoric delivered by both David Cameron and George Osborne, and even if you revile the politics behind it, Cameron's response on Wednesday was probably one of his best moments as Tory leader, their plans for how to deal with the economy should they enter government next year are even more hollow than Labour's. All they have told us is that they would be making cuts now; they refuse to illustrate where, and how harsh they would be. Again, the politics behind this are obvious: no opposition party is going to present their own budget a year before they are actually going to deliver it, but they have to at least give some idea of what their intentions are. All we know is that they're not going to step into the trap of promising to repeal the 50p rate, and that somehow and incredibly, they're still going to find the money from somewhere to raise the inheritance tax threshold to £1m. As Chris again suggests, now would be the time to be taking a larger proportion of unearned wealth, not less.

Similarly, the claims that this budget means the final death of New Labour are also wide of the mark, and based on a misreading of what New Labour was about. The thing about New Labour is that there has never been an ideology behind it; instead it has always been about pure populist opportunism. This has not always tallied into truly populist policies, otherwise they would have slammed the door on east European migrants being able to come and work here, but on almost every other measure they have followed not their actual supporters' values, but those which they believe are both popular and superior. Sometimes they have relied on newspaper headlines and the demands of tabloid editors and their shadowy backers, but they have also relied extensively on focus grouping, which sometimes offers different results, such as the 50p top rate of tax, opposed by the right-wing rags they usually obey, but supported by the public at large. To now introduce such a popular measure is fully in keeping with what they have repeatedly done. Meanwhile, nothing will change whatsoever as regards to triangulating, the thinking behind the policy making that truly defined New Labour. New Labour's true demise might be only a year away, but the living dead are not yet fully exhausted.

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