Wednesday, April 22, 2009

"Rearranging the deckchairs on the Titanic"

Alistair Darling announced his budget in parliament today [Wednesday] but it has drawn a poor reception from opposition parties and commentators. One e-mailer to Sky News described it as merely “rearranging the deckchairs on the Titanic”.

It is a recession that has brought the worst debts in over 50 years and unemployment rates that continue to rise to record levels.

Opposition leader David Cameron said that the government had brought decades of debt. “The last Labour government left the dead unburied, this Labour government leaves the debts unpaid,” he said.

“What is the point of another 14 months of a government of the Living Dead,” he lambasted.

Similar views were expressed by other members of parliament with Liberal Democratic Party leader Nick Clegg accusing the government of being “out of ideas and running out of steam”.

Cigarettes & Alcohol

Many pub goers will be steaming after Darling’s announcement to increase the tax on alcohol by 2%. The decision has angered the British Beer & Publicans’ Association [BBPA] and the Campaign for Real Ale which has lobbied hard to ease pressure on Britain’s pubs, which are now closing at a rate of 39 per week.

There is little solace for smokers who will see cigarettes rise by 2%. And motorists will be fuming after the Chancellor announced petrol would rise by two pence per litre in September and a further penny per litre every April for the next few years.

Tax on beer will hit every drinker in every pub and taxes on fuel will hit every motorist driving to work, Cameron said.

The BBPA said, “Today’s Budget signs the death warrant for thousands of Britain’s pubs and for tens of thousands of British jobs.”

Meanwhile motoring organisations have criticised the fuel tax rises. RAC motoring strategist Adrian Tink said, "Today's announcement is another brutal blow for motorists who have already witnessed a decade of non-stop increases and price rises.”

“It's time for the Government to stop treating motorists' pockets as a bottomless pit of money and recognise their right to drive at a fair, affordable price,” he added.
Car scrappage

There was scepticism over the government’s car scappage scheme which is aimed at reducing the amount of the more polluting cars on Britain’s roads. It is also hoped the scheme will help boost the car industry. From next month, until March 2010, motorists will be offered a £2,000 discount on new cars if they trade in cars older than 10 years. But the cars to be scrapped must have passed an MoT and there has been criticism that the scheme is too bureaucratic.

While the government is putting £1,000 into the scheme it is looking to manufacturers for a matching contribution. It has prompted some to say the scheme may prove to be uneconomic, given that the motor industry will also have to pay for the disposal of the old vehicles.

But Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders was broadly optimistic about the government plan.

“This is good news for consumers and will get people back into showrooms, kick-starting demand in the market,” Everitt said.

“The scheme recognises the economic value of the motor industry and we are determined to make it a success. There is clearly a great deal to do and we look forward to discussing the finer detail of the proposal with government in the coming days.”


The Chancellor announced he would raise income tax for those earning more than £150,000 per year to 50% as from April 2010. But while this may bring in vast sums of money, some believed it may scare some high earners out of the country.


It was the state of the economy which drew most interest. Chancellor Alistair Darling forecast the economy would shrink 3.5% in 2009, 2.5% worse than expected. He said growth was not expected to start until at least 2010 when it would be at 1.25% and 3.5% from 2011.

The figures have already been described as “fantasy” by acting leader of the Liberal Democratic Party, Vince Cable. He said the predictions were “Wildly optimistic and completely unreal.”

Even the International Monetary Fund predicts the British economy is likely to see a 4.1% contraction this year and projects further shrinkage next year.

The Confederation of British Industry (CBI) also said the figures “look optimistic” and warned against such long term predictions. Richard Lambert, the CBI Director-General, said “By pushing out the horizon for balancing the books as far as 2018 the Government is running too much of a risk.”

There were gasps of astonishment when Darling stated public borrowing was set to reach £175 billion by the end of 2009, amounting to 12% of GDP. The total debt would grow over the coming years he said, though the amounts borrowed would fall year on year. He announced borrowings of £173 billion in 2010, £140 billion in 2011, £118 billion in 2012 and £97 billion by 2013. This amounts to a total of £703 billion.

The City was shocked by the mounting debt. City commentator David Buik said many were “blown away by the gargantuan size of the national debt”.

Opposition leader David Cameron accused the government of “Running out of money, running out of moral authority and running out of time.”

But one leading trade union has supported the government’s efforts in tackling the economic crisis head on. Unite's joint general secretary, Derek Simpson said, “Alistair Darling had to deliver the toughest budget in decades but he has positioned Labour as the party for jobs and social justice while exposing the Tories for being the party of cuts and inequality.”


In an effort to tackle the rising unemployment, the Chancellor said the government would offer support to the long-term unemployed under 25s who would be offered a job or training. He announced that an additional £1.7 billion would be made available to the Job Centre network.


Alistair Darling announced a scheme to guarantee mortgage backed securities to boost lending. Stamp duty holiday for homes would rise to £175,000 and be extended to end of year. In addition he said an extra £80 million would be made available for shared equity mortgage schemes.

But opposition leader David Cameron was not impressed by the chancellor’s proposals. “Home buy direct has not made a single sale through the exisiting scheme,” Cameron said.

Savings and benefits

There were announcements to identify and close tax loopholes which he said could raise more than £1 billion. And he proposed a cut in public spending from 1.1% to 0.7% in 2011-2012. In a move to encourage saving Annual limits for tax-free ISAs would rise to more than £10,000 for over-50s this year and for everyone else next year, the chancellor said.


In a bid to cut Britain’s CO2 levels by 34% by 2020, Darling said an extra £1 billion would be spent to support low-carbon industries. Around £500 million would be made available for offshore wind projects over the next two years and £435 million would be spent in support of energy efficiency schemes for homes, firms and public buildings.
But Friends of the Earth's Executive Director Andy Atkins said the government had not done enough. "The Government has squandered a historic opportunity to kick-start a green industrial revolution, create tens of thousands of jobs and slash UK carbon dioxide emissions,” Atkins said

The budget is rarely good news, but this year painted an extremely grim picture. Britain is likely to be in debt to the tune of more than £700 billion within 5 years. Unemployment sees no sign of falling and many expect the number to rise to more than 3 million by the end of 2009.

The opposition parties have made great capital in tearing Labour’s proposals to pieces and called for a change in government. The Conservatives may well win the next election set for 2010, but they will inherit a country in the worst financial situation in living memory. It is an unenviable position they will find themselves [BBC / Sky News].

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