Gary Duncan, Economics Editor
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Alistair Darling admitted today that the nation’s finances are now set to plunge at least £20 billion deeper into the red as a sharp slowdown in the economy this year, and still anaemic growth in 2009, take a severe toll on tax receipts flowing into the Treasury.
Despite relatively modest cuts to his growth forecasts, the Chancellor was forced to reveal a severe toll on the Government’s finances as the housing market downturn, weaker consumer spending, rising unemployment, and tougher times for the City hit tax revenues from stamp duty, VAT, and income tax.
The heavy blow to tax receipts from weaker growth was almost entirely to blame for still more very steep increases in the Treasury’s borrowing plans as the public finances slide even deeper into the red on future plans.
Borrowing totals were also swollen by a £3 billion rise in social security bills over 2009 and 2010 due to higher costs for benefits blamed on a combination of rising unemployment - expected to climb back to 1 million by 2010 - and higher inflation meaning bigger increases in welfare payments.
A further £2.4 million on top will be added to the cost of tax credits, due again to inflation as well as the Government’s renewed effort today to cut child poverty.
Mr Darling will now have to borrow £7 billion more in the new financial year 2008-09 than he expected in his October Pre-Budget Report, lifting borrowing to £43 billion, compared with £36 billion expected in last year's autumn pre-Budget Report and just £30 billion in last year's spring Budget. In 2009-10, he will again borrow £7 billion more than previously planned.
Although the Chancellor was able to confirm that borrowing this year of £36 billion was a little under £2 billion less than he had expected in October, it was still above Gordon Brown’s £34 billion estimate last spring - marking the sixth year out of seven that Budget borrowing forecasts have been breached.
In total, today's Budget added an extra £20 billion to total government borrowing plans from this year up to 2011. Compared with Mr Brown's final Budget, delivered last year, borrowing over these four years will be £34 billion more than the Prime Minister planned just a year ago.
There was little sign in the Budget of the measures to support growth that the Chancellor promised before yesterday’s statement, which would have spelled significant tax cuts or spending increases.
Today’s measures taking effect this year were broadly neutral, while Mr Darling gambled on raising taxes by £800 million next year despite the weaking economy as he sought to shore-up his strained financial position. On top of other tax rises last October worth £300 million, this meant an extra £1.1 billion in tax next year.
In 2010-11, the Chancellor now expects to raise an extra £1.9 billion in tax, on top of the £0.95 billion announced last October.
Economists are likely to see these small further tax increases as a dangerous gambit, adding to a slowdown in government spending from this year in further tightening the screws on an already weakening economy.
The Chancellor fulfilled City expectations in his statement as he downgraded his forecasts for the economy’s performance this year for the second time in six months, and also conceded that growth next year will now be weaker than he had hoped.
Mr Darling cut a half of a percentage point off his projection for economic growth in 2008 to a range of 1.75 to 2.25 per cent, down from his October expectation that GDP would rise by 2 to 2.25 per cent.
The downgrade brought the bottom end of the Treasury’s forecast into line with the average City view of how the economy will fare this year, and with the Bank of England’s expectations, but some economists sounded warnings that it was still too rosy. The gloomiest mainstream City forecasts expect growth this year to more than halve from 3 per cent in 2007, to as little as 1.2 per cent amid fears of a recession.
Some City economists also attacked the Chancellor’s forecast for next year as likely to prove over-optimistic, after Mr Darling lowered this by a modest quarter-point, to a range of 2.25 to 2.75 per cent. City forecasts for 2009 range from 1.7 to 2 per cent, with mounting anxieties that the eventual outcome could be much worse if the global downturn and worldwide credit squeeze continue to deepen.
Economists said that the stress on the government's finances was underlined by a further worsening in the Treasury's current budget measures, which cover all day-to-day spending after excluding investment on areas like roads and hospital and school buildings.
The lion’s share of the new tax rises unveiled today by the Chancellor will be borne by motorists and drinkers.
By introducing an escalator for alcohol duty similar to the one that controversially used to apply to road fuel, the Chancellor plans to bring in £1.5 billion over the next three years in extra tax on beer, wine and spirits.
Higher fuel duty from 2010 will raise £270 million a year. New, higher rates of road tax with heavier duty for "gas guzzlers" will raise £465 million in 2009-10, rising to £735 million in 2010-11. Scrapping the difference in duties paid for biofuels raises an extra £550 million in 2010.
Steep and escalating rises in alcohol tax will raise £400 billion this year, rising to £500 million next year and £625 million in 2010.
The Chancellor again turns to the oil companies as a rich source of revenues, with a crackdown on what the Treasury regards as tax abuses due to raise nearly £500 million over three years starting this year.
Other businesses are hit by a raft of technical and detailed tax-raising measures. In particular, an overhaul of the regime for taxing UK companies' foreign profits brings an extra £150 million in for the Treasury this year and next, falling to £100 million in 2010. Changes to VAT rules related to companies' hiring of staff is expected to raise £150 million in 2009 and £125 million in 2010. A raft of smaller moves to toughen the tax regime and crackdown on avoidance are designed to bring in more than £250 million in 2009 and a similar amount in future years.
Overall the Budget was broadly neutral, leaving taxes as a whole largely unchanged this year, with a nugatory net tax reduction of £140 million. But the tax increases planned for next year and the year after suggest that not only was Mr Darling forced to try to bolster strained government finances, but also that he and the Prime Minister may be attempting to start to build a warchest for the next election.
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Is Gordon Brown self employed if not does the country employ him? If we have been employing him we should be able to reap the benefit of his 10 booming years, but we can't because we are now informed that we have very large debts, something is wrong here. What were the terms of his employment?
christine marshall, cambridge, England
Aboslutely anyone can spend money - that takes no skill at all, especially other people's money. What does take more skill is choosing where not to spend money - that is something this government has never got to grips with.
We are ruled by BIG GOVERNMENT - sticking their noses into the working man's everyday life. They should stick to raising enough money to fund the police, health service and stop meddling. Cut out the projects, experiments and grandiose schemes. And PLEASE stop telling us how to live our lives.
Patrick, Blackpool, Lancashire
People who earn between 36,000 and 40,000 pay 51% marginal tax!
How can keeping only 49p in the pound motivate anyone to work?
The choice is emmigrate or go on benefits. When these choices become the decisions facing us, you can only conclude that the UK is structurally destined to become a failed economy.
(That is 40% tax plus 11% national insurance - a tax by any other name)
Alex, London, UK
The amount of money being taken from us is getting beyond the bounds of reasonable taxation and into the realms of legalised theft. There are numerous areas where taxes could be cut, they could start with all the ghastly government adverts we are bombarded with during every waking hour, then sack about 20% of all the people holding non jobs like those Highways Agency bufoons who keep closing the motorways, get rid of half the quangoes, consultants and other parasites, the list is endless. I read somewhere that they could abolish income tax altogether if they just returned spending to 2002 levels yet all we get are demands for ever more taxes for them to squander. The government is now spending money faster than the private sector can produce it so they play the green card to fleece us even more. The Conservatives say that they will maintain this drunken sailor spending. It's about time someone took a bit of a harder look at all this and cut their cloth accordingly.
Simon, Chatham , Kent
the government - national and local do nothing but WASTE OUR MONEY!! It's time to call a stop to it! Stupid, grandiose schemes like ID cards (15 billion pounds for god's sake!!) Plus other stupid waste, waste waste...why can't they Cut Back the Spending like we have to, then they won't need so much!
And STOP COUNCIL TAX NOW!! It's unfair, too easy to keep on raising it and could be done much more simply by adding a bit on income tax so we wouldn't notice it!
Jack James, Dawley, Shropshire
Maybe the world should help UK in defeating poverty.
London should organize a concert â UK Aid â and poverty will be defeated. Japanese media reported the dramatic poverty in the UK,
and maybe they will help too.
M2, London, UK
I wonder just how many will now turn on Gordon (Messed it up) Brown who only a year ago were praising him for being at the helm of a tight and macro economic sound footing. Borrowing to fund growth is but part of the whole equation. Those experts who get paid for trumpeting such as disaster should now decide for themselves it is time to opt for another career.
The last decade has been an opportunity waisted on trying to create legacies instead of a country fit to fend for itself in an ever more competitive filed.
Instead of a country of shop keepers - the UK is now a country driven by shoppers.
Just watch the GDP drop like a stone. Unless the UK returns to yet more of the 125% mortgages that never existed in the first place!
I did not mention Darling - what is the point. He is just the delivery boy.
Paul, London, Canada
If UK growth is forecast at 1.75% and RPI inflation is currently 4.3%, this means we are every year getting poorer as a nation.
£43 billion per year government borrowing means he is adding this amount to the national debt that Labour has already grown from £306 billion in 2001 to £600 billion currently. Reducing this 2.9% amount of national income to 2.5% means he is still borrowing the same amount with no plans to repay back due to his forecast for some GDP growth.
Tax (duty) on petrol and energy is already more than half the price of petrol, hence Labour are creating the inflation that prevents interest rates from falling and will cause the coming recession. This coupled with the fact that 17.5% the price of all non-food items in the shops is VAT tax.
At what point does wasteful public spending become investment ? Labour need to cut back on public spending to run a balanced budget, not one that borrows £43 billion per year on top of the already high taxation.
George, London,
We can all rest easy in our beds tonight the TUC agrees with the chancellor the only problem this budget is a load of tosh here we go again more borrowing its labour doing what it does best Tax and Spend.and Tax and Spend. while this country goes to the dogs.
JJ, Southgate, London
What are these misfits in government squandering all our money on? I want to see the accounts NOW.
Cromwell, Leeds, England
its not the fact that this is a budget by brown that irks, its not the contents of the budget that irks, its the fact the regardless of the tax raised be it 50p or 500billion, this Govt is inept in the basic requirement of administering the money - they feel that they have discharged their responsibilties completely by simply throwing money at problems. the nhs and education are two wonderfull examples. Even if the average uk citizen were working for the Govt for 9 mos instead of the more likley 4 or 5 mos beofre seeing a penny of their own earning, the govt will contrive to piss it up the wall and acheive nothing "in real terms"..
zugerman, zurich, Switzerland
For the second year running Car Road Tax is raised including small cars without a mention in the budget. 07 £100 increased to £115 now 08 increased to £120 Stealth, Stealth is all these imposters know.
Michael, Sheffield,
So now that the cost of a drink is ten pence more, young people will not get blind drunk in the cities every weekend and alcoholics will be saved?!! And of course the added 11p on a packet of cigarettes will help people to give up smoking?! Why cant the government get real and look to the root of the problems that lead to this behaviour. Look at other european countries such as Italy, France and Spain; where a good bottle of wine costs four euro and wake up! The drinking problems in the UK are cultural; it is not because pre-budget, Tesco could sell you a can of crappy beer for 24p!!!
Nikki Ciocca, Limassol, Cyprus
"If it ain't broke don't fix it."...but it is broke (£2Trillion) and he hasn't fixed it.
Brian Gilbert, Hampton, Middx
Just one of my thoughts on the budget from my new website, www.thelabourparty.org:
Plastic bags? What about the far more important environmental disasters in their early stages, like the chemicals that some people flush down the toilet that end up in the rivers and seas that are having 'gender-bending' effects on marine life?
These chemical are now in other food chains. A study has shown that male starlings have become more effeminate due to ingesting female hormones from the contraceptive pill and hormone replacement therapy.
Oestrogen in sewage outlets is changing the sex of fish and causing males to produce eggs.
I think it is probably obvious that certain chemicals are also in the human food chain and are to blame for boys becoming more effeminate and girls entering puberty ever-younger.
Stewart Cowan, Stranraer, Scotland, U.K.
Sorry Lee Baines I think we all know we pay more than enough taxes already. It is not the amount of tax raised that is the problem, it is the sheer incompetence of those spending it! All those extra billions have not delivered a shred of extra productivity. What about those wealthy GPs and consultants working shorter hours, your NHS dentist, educational standards, your train services, council services, great pensions for public sector workers but bobbins for those in the private sector. Its not about increased taxes but productive use of existing resources - would you run your household budget like this Government uses your money?
John, Manchester,
Poor chap. He does look like Mr Bean.
Jim, Bristol,
This Budget has Brown's fingerprints all over it. Brown has form on this for 10 years. How many times have we heard Brown say there will be a clamp down on benefit cheats --it never happened.How many times has Brown said he wants disabled claimers back to work . It never happened. Now Darling says the disabled claimers will be assessed in 2010. You can easily detect why. He can't risk losing Labour voters. He has form on this. For 10 years he spoke about reviewing non doms. Nothing happened becaused they were the main funders of Labour. Now the rich non doms have closed their pockets to him & a future Conservative tax suggestion makes him spring into action. Well, not quite a bit of dithering & changing before it happens. Every Brown Budget addresses voters first, country second, although in the case of England a poor fourth, after Scotland & Wales.
Clive Kitchener, Pulborough, UK
This country is coming to shambles. Its in debt! The inland revenue is a complete mess overpaying people claiming that they are entitled to it and then blaming them for overpayment demanding a lump sum! Systems are losing discs with personal information on it! Taxes are rising taking away hard earned money! If money is taken from taxes and from loans, where is it all going? The pensions are low and so are the benefits! You pay loads in taxes and get not a lot back!
Labour goes too liberal and conservatives are a bit too right-wing! Even distinguishing between them is a blur!
J, leic, U.K.
antpilk please tell me its not labour!! haven't they messed up enough? where have our pensions gone? oh thats right labour has spent them, while the conservatives may not be the best choice they are the only other choice, lets give someone else a chance otherwise this government will carry on doing whatever they want
Tim, london, england
Lots of Tory voters moaning in this forum; it's not ideal the state the country is in but god help us if the Thatcher mob ever got into power again. I don't know what is the best solution, but for goodness sake, it's certainly not Conservative!
antpilk, Lancashire, UK
You people make me laugh; we all in our heart of hearts know that we do not pay enough tax to keep the system running the way it should. However, the mere whiff of a tax rise, and there is a clamour for Darling's head and the end to Labour's stranglehold on number 10. Did the Tories never raise taxes? Would they have been superior in predicting market downturns? I don't think so. Cameron's remark smacks of irony, too; can you imagine the uproar if Labour had held back spending on health and education in our prosperous years "for a rainy day"? There would've been uproar (the British public have no concept of the term frugal) and they'd never have been voted back into Government.
The problem is not with the parties, but with the idiotic voters who can't see past their noses. We are the Frankenstein - MPs are our monster.
I do concede the idea of raising revenue through taxes on beer and fuel is quite laughable - the sooner our taxes are based purely on income, the better.
Lee Baines, Skelmerdale, Lancashire
What is it with this country poor fiscal management,lax immigration control ,spiralling crime,6+ million on some sort of benefit and a nice little tax credit to support poor paying companies-where is the opposition? Oh and the '08 council tax bill has just arrived on my doorstop....great.
Sven, Greenhithe, UK
There is NO child poverty. Please stop using this socialist phraseology of moral blackmail.
John Tomlinson, Brentwood, uk
It is the very right time for Scotland, Wales and N.Ireland to become Independant countires than be speechless deaf in UK union. So, that English can't complain of giving more and more. The truth will be out in the air then!!!
Uma Shankar, UK,
MP's will be unaffected by the rise in alchol duty when they buy from the House of Commons. Road pricing will not affect MP's who use ministerial cars but affect everyone else going about their day to day work. Where are all these kids coming from who are in proverty, 10 years and the problem appears to be growing? Public spending to increase which will equate to more waste, 10 years of investment and the services have not improved in line with the investment. Darling forgot to mention the increase in local tax (council tax) where does he take this figure into his account? Why are we increasing borrowing reduce foreign aid which is forcast to cost the UK taxpayer £9 billion. No tax reductions from a greedy, envious Labour party who will not promote an enviroment for those who do not want to beholden to the social justice mess created by this party.
steve tea, manchester, cheshire
He's increased taxes again. We have tried that policy and it has failed. We need to try a new policy.
Frank Upton, Solihull,
Wow what a flop no mention of the low paid or 60 + women on small incomes or pensions who are due to be rob by GBs changes to taxation. My wife ,daughter and youngest son will be paying more tax in the next financial year, whilst the rich get richer by paying less. But not worry say's GB you can always fill in a 35 page document and try to claim one of his wonderful tax credit benefits which we all know cost the taxpayer twice as much to run than they actually distribute if your lucky enough to get through the paper minefield.
The sooner we can kick this lot out to grass for another 18 years the better.
Dave, Mold, Flintshire
To be honest no one expected much of a budget so no one should be disappointed. This government, whilst under the banner of ânew labourâ, looked very much like old labour. No cut back on spending, but lots more borrowing which is described as âinvestmentâ.
As David Cameron said, the government didnât put away money in the prosperous periods and now the downturn is upon us, the bank is empty (in more ways than one). Borrowing has been, and will continue to be, the only way this government can meet all of its commitments leaving us with more long term debt to pay at some point in the future.
Grahame Goodyer, New Milton, UK