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Brown goes for broke to beat the slump
Joe Murphy, Political Editor24.11.08
GORDON BROWN went for broke today by gambling a fortune of borrowed money to beat the slump.
In the most dramatic mini-budget for years, Chancellor Alistair Darling was having to rip up his previous forecasts for the economy.
He will give cash to families and pensioners in the New Year with one hand. But with the other, Mr Darling will dig into people's pockets after the next election to claw some of it back.
The Chancellor said his aim was a "comprehensive plan" to shorten the recession, adding: "I won't play down the difficult times we're facing. But I can promise that I will do everything I can to help people get through them fairly by providing support now."
In key announcements expected this afternoon:
●Borrowing soars to £70billion this year and £120 billion next year - the equivalent of every family getting £10,000 deeper into debt.
●Child benefit goes up almost immediately by over five per cent to £20 for the first child.
●Those on £150,000-plus will be hit by income tax of 45p in the pound after the next election.
●VAT down to 15p to put £11billion into the economy.
Higher child benefit is being rushed out for millions of families — while the wealthy face a new 45p top rate of tax.
The boost for families and the sting for high earners are at the heart of Mr Darling's “spend now, pay later” mini-budget.
Child benefit, paid to 25 million, will go up by over five per cent to around £20 a week for the first child, up £1.20, and £13.20 a week for younger children, up 65p.
The rise would not normally be paid until April, but it is being brought forward to stimulate spending and should reach families in a few weeks. Pensioners will also get an early spending boost, ahead of their regular annual increase.
An immediate cut in VAT from 17.5 per cent to 15 per cent will be the flagship measure to get families spending and keep the tills jingling over Christmas. VAT will stay down for two Christmases in a row, until 2010, the likely year of the general election.
There were indications that VAT may then rise higher than its current level as part of a painful post-election tax blitz to reduce the borrowing requirement, possibly hitting 20 per cent for the first time.
High earners were put on notice that they will be targeted with a new top rate of income tax of 45p in the pound, hitting some 400,000 earning more than £150,000 a year.
In a sign of how little sympathy there is for big earners in the wake of the banking disaster, the Conservatives did not dare immediately attack the idea, knowing they would be challenged to say what other tax they would increase instead.
It will be largely symbolic, raising an estimated £2 billion from 2011 onwards — a drop in the ocean of debt that the Government will need to pay off. But some critics called it the “end of New Labour” because the party famously pledged in its 1997, 2001 and 2005 manifestoes not to change the current 40p top rate, which applies to those earning more than £39,825.
Left-wing Labour MP, John McDonnell, said the 45 per cent rate should be imposed immediately. “It is long overdue and delaying until after the next election is pointless,” he said.
Robert Chote, director of the Institute of Fiscal Studies, said: “You are not going to raise an enormous amount of revenue from this.”
The fiscal stimulus will inject about £4 billion into the economy in the current financial year and about £15 billion next year. A £2.7 billion tax cut brought in to compensate losers from the abolition of the 10p rate will be carried on for a second year. That is worth some £120 to each basic rate taxpayer.
Hopes were falling among Labour MPs for the extra £1 billion demanded by 10p tax rebels to fully compensate losers who fell through the cracks.
Several billion pounds worth of spending projects originally planned for 2010 will be brought forward to next year to help the economy.
They include hundreds of school and hospital refurbishments, new railway carriages, and minor road improvements. A project to install better insulation in council homes and other social housing will create extra jobs.
The 2012 Olympics is expected to support thousands of construction jobs to help bridge the slump in London.
A package of measures will be aimed at helping small firms. A special loan guarantee scheme will see the Government underwrite 75 per cent of the risk when banks lend to small firms. A 1p rise in the small companies rate of corporation tax planned for April will be delayed at least a year. Revenue and Customs has been ordered to give small firms extra time to pay their tax bills if they seek help. To stem an exodus of firms, tax relief will be given on dividends paid on earnings overseas.
For homeowners, Mr Darling will say he has negotiated a pledge from the banks to give three months grace to people falling behind with mortgages. He told the Standard: “We are being hit by the global shocks that have shaken the world economy. I know many people are worried about their jobs and businesses and how they will pay their bills in the period ahead. So I will set out a comprehensive plan that will support the economy as the global downturn takes hold so we can get through it quicker and stronger, and make sure that we build on a foundation of stability for the future.”
The Conservatives said the real story was that taxes would shoot up after the next election.
Revised forecasts will confirm the economy is entering recession and will shrink by more than one per cent next year, though it should start growing again in 2010 and strongly in 2011.
Borrowing, which was supposed to hit a high of £43 billion in the current year, is now likely to reach £70 billion and rise to £120 billion next year. A freefall in tax revenues from the crunch-hit City and the collapse of the property market hitting stamp duty has torn previous Treasury calculations to shreds. Mr Darling was making it clear that his largesse will be short-lived. His Pre-Budget Report was expected to contain a detailed timetable for reducing borrowing from 2011 onwards through tax increased and efficiency savings.
Treasury Minister Yvette Cooper was publishing plans to show how £5 billion can be lopped off Whitehall costs on top of some £30 billion of savings already promised. A new study will be launched to identify state-owned assets that could be sold off, possibly including the Met Office, Ordnance Survey and Forestry Commission land.
In a speech to the CBI, Gordon Brown said previous recessions lasted longer because governments had not taken similar action. “To fail to act now would be not only a failure of economic policy but a failure of leadership,” he said.
Reader views (27)
The only debts any of us should have, are to Society.
- Simon Rodway, London
Amazing the people from around the world slagging off the government and the country. Ian in Toronto - you left so please don't criticise. Labour have made more good decisions than bad overall which is the best you can ask of any group of people. Hopefully all the Jonahs who contribute to this site (the minority who actually live in London) will take up your advice and leave on the nearest boat or plane for pastures new and leave the rest of us Londoners to get on with life.
- Saunaing Tic Gill, LONDON, England
He will continue to go for broke. Crash Gordon does not know anything else than lose money and then taxing us. It has not been a good 10years for the UK...
- Georgie, Islington, London
10 years ago to the very day, we left the U.K. for pastures new - with heavy hearts as it was our home since childhood. Now looking back - across the North Atlantic, we are relieved our family is not being brought up in the debacle Brown and his cronies are concocting, and it seems old Labour of the 60s and 70s is on its way back with taxes through the roof and an economy in the pits.
Anyone with any sense will be lining up to catch a plane or ship before the island sinks without a trace, before it is too late.
- Ian, Toronto, Canada
So, as the roulette wheel spins, jittery Crash Gordon chews his nails after piling 'everything on black', while the ball, oh so predictably, heads for red.
And it's Goodnight Gordon.
- Dave, cumbria
Is two-and-a-half percent off VAT really going to have any effect? At a time when shops are having 20%-off pre-Xmas sales, will we even notice that prices are down that little bit more? Is it really going to encourage anyone to spend more? And if the economy does not recover quickly, won't the massive increase in public debt make the recession longer and deeper?
He'd have done better to bring forwards more infrastructure projects, at least that would create jobs now and create value lasting long into the future. Instead he's still going to squander 15 billion on ID cards and in the process create a well-paved path to a future fascist state.
- Nigel, London
The economy is only at its critical because this government decided to bail out the banks which gambled on short loans.
Had this not been the case, and these banks were forced to close, we would not be in this position.
to cut vat by 2.5% isnt going to make me want to spend more and with GB hiking taxes to 45% for those earning of £150K a year will only encourge labour to reduce the threshold to those earning over £75K in the near furture!
This country is soo sooo bad to live in, that it would be plausable now to emigrate and avoid catastrophe bought around by this governments inadequate provisions to balance the books.
- Raminder Bhalla, Northolt
its amazing to see the bunch of dweebs that are our 'leaders' and i wonder just how they were ever elected? the treasury committee looks like a bunch of retards, and as for dear leader gordon, he hasnt got a clue..
- Jana, Haringey
Why should I have to pay more taxes in the future because of a totally incompetent government, and pay for people who have kids. You want kids, you pay for them, not the taxpayer! If we didn't breed so many low life scoungers in this country we would have a bit more money to go round.
- Sue, Orpington, Kent
12 years of socialist mismanagement and overspending have caused this problem for the UK.
- Anon, London
"...but with the other, Mr Darling will dig into people's pockets after the next election to claw some of it back..."
He'll have to be re-eleced first. God help us - it's 1976 all over again.
- Jim, London
It is time for the private sector to protest on the streets for the day,if not monthly,probably a saturday as we do work hard (i have nothing against the doctors,nurses,teachers and worthwhile p.sector jobs).The time has come though to challenge this bloated sector which has expanded beyond belief under Labour.The protected pensions is a disgrace and should be challenged.I have no intention of staying arnd for 45 pct taxes if i do have a good year (or even a job in the future)
- Dominic, london
This happening round the world not just the UK is going this per budge. you must think before you lot blame Gordon brown he the best PM.
The tory party would screw this country if they handle it.
- Andy, London
Idiot Brown has wasted billions on the health service which has spent the money on incompetent cleaners (probably iillegal immigrants), in addition to creating hundreds of thousands of "jobs" ie worthless civil servants with beneficial pension rights and no discernible function other than to spend taxpayers money. But of course they will be forever Labour voters because of that. Buying votes used to be illegal.
And after 11 years of waste on a gargantuan scale, the taxpayers who make it all work ie the 20% at the top who pay 75% of the TOTAL tax bill already, have to pay their "fair" share. I am going to leave the country, and hopefully many of us will.
- Jon, London
The lights will go out when the bill isn't paid.
- Bloke, London
Bj,London. You're Absolutely right except huge amounts leaving country via benefit that will be an excuse to reinstate exchange controls even more viciously. We are in for dreadful time. How did we allow it to get this bad? Communist rule O.K
- Mike,, London
R.I.P New Labour!
- Selwyn Channon, epsom
Why is it everytime people claiming child benifit get an increase ASAP.
There are working mothers out there who earn a good wage can we not limmit this to the parents who are not working and will use it for the child wefare and not just bank it as people i no do for holiday spending
- Terry C, London
Not so long ago PM Blair was describing Brown as the best Chancellor we ever had and the architect of our economical big-bang and national prosperity. It all sounds a very small damp squib now doesn't it. One wonders just how accurate and diligent the Treasury figures really have been.
- Robert El-Cid,, Hull, East Yorks.,
he might be "going for broke" but with his pension he won't be broke if it all goes t*ts up but the general public not employed in local or central government are gouing to suffer.
when are we going to stop paying the public sector indexed linked pensions paid for by those who are having a hard time paying for their own pension.
- Ron Oliver, Edinburgh Scotland
Gordon knows he won't be around when it's time to payback all this money he's handing out he hasn't got. I'm sickened he's allowed to get away with it.
- Marianne, SW France
I'm not poor by any means and have just retired after a lifetime of paying very large amounts of tax (half-a-millon pounds in the last 2 years). This recession has hit my investments but I am not too worried because I HAVE NO DEBTS and saved when times were good. This poor excuse for a government have done the opposite and are now looking to borrow more and make the taxpayers fund this in the future. Amazingly there are enough morons left in the UK who think Brown and NuLabliar are doing a good job and may re-elect this band of lightweights. Well I've had enough. Bye bye UK for good - no more taxes from me.
- Andrew, London
The tax take had already hit the ceiling and now they are going to come back for more in 2010! An absolute shambles! I don't recall banks going to the wall in the recessions we experienced in the 1970s, 80s and 90s. Heaven help us if this crew get in again at the next election ~ we'll slip beneath the waves!
- Keith, Bath
Welcome to the 1970s
- Bj, London
We must stop referring to the PM as boom & bust Brown for we can all clearly see it should be just broken & busted PM Brown.
- Joe, London, UK
Historical Budget of the century for benefits scroungers. Borrow now and fill the treasury hole later by increasing tax from hard working people. Another labour's borrowing culture.
- Muheed Jeeran, Colombo
Last one out, don't forget to turn off the lights.
- Derek, London
