Chancellor has ducked the tough decisions – Mark Littlewood and Philip Booth on the Pre-Budget Report

Alistair Darling has failed to take the tough decisions to tackle the country’s enormous budget deficit. According to Mark Littlewood, the IEA’s Director General,

“A tax on bankers’ bonuses is a populist measure, not a practical one. It must not be allowed to distract from the enormity of the budget deficit. Both government spending and tax rates are far too high. In particular, we need to cut back dramatically on the country’s ballooning welfare bill which, including state pensions, accounts for over a quarter of total government spending. The Chancellor’s proposals today are barely even cosmetic. Unfortunately, this Pre-Budget Report seems to be more about chasing headlines by kicking bankers than dealing with the bottom line of the country’s public finances.”

Professor Philip Booth, the IEA’s Editorial Director, commented:

“Trying to deal with a deficit resulting in large part from high government spending by raising taxes yet further is a big mistake. But arbitrary taxes, such as the tax on bankers’ bonuses are worse – it is the best way to drive business and talent away. Instead, spending cuts are necessary. Benefits should be indexed to inflation – and no more – even if inflation is negative, child trust funds should be abolished, and many of the gimmicky benefits given to older people by Gordon Brown in earlier budgets should be reined in. For example, the winter-fuel allowance alone costs nearly £3bn.”

A significant part of the continuing credit crunch is a serious lack of confidence among the population generally (consumers, savers, wage-earners, pensioners, voters, etc.)Opinions may vary about whether cutting government spending now is a good idea, or whether that might risk delaying or choking off the hoped-for ‘recovery’(which Alistair Darling always seems to see about three to six months ahead).But unless and until the government is prepared to spell out explicitly some of the ‘hard choices’ it intends to make (possibly implementing them after the general election)confidence is most unlikely to be restored.One has the impression that the politicians are just playing politics

The problem here is that there is, as yet, not enough pressure on politicians to act. Both Labour and the Tories wish to put off any detailed prescriptions until after May next year and the markets seem content to wait as well. Everyone knows that Darling and others are not being straight, but this seems to be expected and accepted. There is also an assumption, probably correct, that most voters are more than happy to have the pain delayed for as long as possible, and anyway, they too assume that politicians are lying to them. One has to fear that the politicians will continue in this manner until they are forced to act otherwise.

Regarding, David’s comment…I agree that opinions vary about whether cutting public spending now is a good idea, but mine is fairly clear. From a pure confidence point of view, one of the reasons for lack of confidence is the degree of debt. Piling up more debt (albeit government debt) adds to this problem. From a macroeconomic point of view, I do believe in crowding out. Government spends £1, one way or another that has to come from the private sector. Of course, people may be repaying debt for some time. That reduces consumption but need not reduce national income as long as monetary policy recognises that interest rates should be lower and, in consequence, sterling would be lower too.

[...] Index is based primarily on data from July 2008 to June 2009 – before December’s disastrous Pre-Budget Report and the arbitrary supertax on bankers’ [...]

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