Monday, November 24, 2008

Mixed reception for pre-budget speech

Darling's plan: VAT down, some taxes up, and a lot of borrowing

The FTSE rose sharply during an address by the Chancellor of the Exchequer as he laid out steps to “protect and support businesses and people” in the UK. Alistair Darling said he was exploring a credit guarantee scheme to help lending to families and businesses. “Maintaining financial stability was crucial” the Chancellor said before the UK parliament. He claimed that inflation was likely to fall but that manufacturing output was also likely to fall in the first two quarters of 2009. He said he and the government would “do whatever it takes to get the country though these rough times”.

His pre-budget statement came on the back of “economic uncertainty not seen for generations”. He conceded that government borrowing would rise from £78 billion in 2008 to £118 billion in 2009, equivalent to 8% of GDP. He said that the UK net debt would be 48% next year peaking at 57% in 2013-14. But he insisted that allowing borrowing to rise was the “right choice for the country” adding that “if we did nothing the recession would be longer and deeper”.
While saying the government would cut back on government spending, he said the focus would be to inject available funds into roads and affordable housing. He also said that the government would continue to pursue it green energy goals which he said would provide energy security, new jobs and reduce energy bills. In addition he said the government would invest £530 million in sustainable energy schemes.

In order to boost consumer confidence and spending Darling said he would temporarily reduce VAT from 17.5% to 15%. The change would take effect on 1st December and continue throughout 2009. However, he said the duty on petrol, tobacco and alcohol would be increased to offset the drop in VAT.

He also set forth proposals to give the country’s poorest 8 million people 50p for every pound saved and increase child benefit in January. Pensioners would also benefit from a £60 one off payment in the new year.

The Tories immediately criticised the Chancellor for increasing the national debt to more than a trillion pounds, doubling the British debt in less than five years. “Stability has gone out the window, prudence is dead, Labour has done it again”, George Osborne said to the house following the Chancellor’s speech. He decried Labour’s claim that it’s all America’s fault; “What total nonsense” the shadow Chancellor exclaimed. In contrast to Darling’s assertion that Britain would not see as deep recession as other countries, Osborne read out a statement from the IMF which said that Britain’s recession would be worse than any other major economies. “Darling thinks he can borrow his way out of debt”, Osborne continued, accusing Labour of getting out the government credit card. He also criticised the VAT rate reduction, accusing the government of “offering a temporary cut and telling people their taxes will go up to pay for it”. In a final blow towards the Labour benches, Osborne bellowed, “This isn’t just a bombshell its a precision-guided missile at the heart of a recovery”. However, the economy did rather better today with the FTSE closing 9.84% up on the day’s trade, its highest ever daily rise. Gains had already been made throughout the day and was around 6% up as the Chancellor took his place at the bench. But the rise continued from 4080 points to 4160 by the time he finished [BBC] .

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