All Alistair Darling needs is to copy Ken Clarke

Anthony Hilton
8 Mar 2010

The date of the Budget should be announced this week and most of the betting seems to be on 24 March, which is two weeks on Wednesday.

Budgets can be pretty boring, a lot of sound and fury signifying not very much.

Most of those produced by Gordon Brown fell into that category and were characterised by one initiative after another, the majority of which came to nothing.

Nor in his time as Chancellor has Alistair Darling done much in his Budgets to be remembered for.

This time though it really could be different. There has been speculation to the contrary — that Darling will announce nothing new and content himself with holding the course he spelt out in last December's pre-Budget report, ie that tackling the deficit will have to wait until the economy is growing strongly again.

This could simply be a ruse to put the opposition off the scent, because it is surely much more likely that he will use the occasion comprehensively to wrong foot the Conservatives by producing a closely argued plan for tackling the deficit.

Properly done he could steal most of the Tory ideas, add a bit of Labour moderation to their more strident demands, and leave George Osborne and David Cameron with nothing new to offer the electorate or to say in the election campaign which will then be upon us.

Given that this election is about the economy and which party has the most coherent strategy for tackling our financial problems, it is surely too good an opportunity to miss.

The primary preoccupation of political parties is to stay in office, so his colleagues in the Cabinet and on the backbenches will expect him to maximise the political impact of the occasion.

Darling himself will be conscious of the fact that the Conservative lead is crumbling — he will never have a better chance to appear as the saviour of his party.

And on top of all this he has one further brilliant advantage — he can say what he likes, make whatever claims appear to be credible and map out whatever plans he thinks will be in the nation's best interest or electorally popular, safe in the knowledge that he will never be called to account because with the election so close there is no chance of anything contentious in the Budget passing into law before Parliament is dissolved.

Indeed, the convention when an election is in the offing is for Parliament to pass an agreed minimalist Finance Act which allows the Government to keep collecting its taxes so the machinery can still function while the nation goes to the polls but offers nothing else. Then the new Government starts over again with a clean slate.

Thus the Chancellor could announce an immediate freeze on government spending — which Roger Bootle of Capital Economics has estimated would trim £20 billion a year from future spending levels as projections at present have a built-in allowance for inflation which would be removed.

That would cut between £80 billion and £100 billion off the deficit over the life of a Parliament — enough to wipe out the structural deficit but with the political advantage that a freeze seems less brutal than a cut.

In similar vein he could announce that VAT will rise to 20% but in a year or 18 months' time, and at the same time remove the lower rate bands on everything other than food. That would be worth another £15 billion a year.

And he could get the well-off paying more — not by raising rates and provoking another furious backlash but by capping the amount of pension saving which gets full tax relief at £50,000 a year.

The Treasury pays out billions in relief on pension contributions and the vast bulk of it goes to the highest earners. A measure like this would claw most back and be hard for the Tories to argue against. As indeed it would be if he decided once again to harmonise capital gains tax with income tax, a policy originally put in place by former Tory chancellor Nigel Lawson.

Such a strategy overall would be close to what Ken Clarke did in 1993 when he was confronted by an economy which was then in the most disastrous state public finances had been in since the war.

Basically he capped spending, and announced new taxes to be imposed in future years on insurance premiums and airline tickets and also announced a two-stage application of VAT to electricity and gas bills.

That and the boost to exports from a lower pound turned the public finances around so fast that when Labour came to power a mere four years later in 1997, the public finances were the best they had been for years.

Add to this the hike in national insurance contributions which Darling has announced for 2011 and he has most of the money he needs to sort out the crisis.

That would be a clear path to bringing the Budget back under control — giving the Tories very little opportunity to find something new or meaningful to say.

Finally, he could announce some initiatives to stimulate economic growth, employment and investment in new technologies. How can the Chancellor resist?