Tonight:
4°c
FAR FROM boosting confidence, the Chancellor's pre-Budget report has alarmed many with its plans to run up debt on an epic scale — more than £1 trillion over five years. Alistair Darling deserves credit for being open about the temporary nature of most of his tax giveaways, and about how taxes will have to rise to help fund them. But the detail of the plans — the heaviest borrowing requirement since the Second World War, combined with a growing tax burden for the middle classes — makes this an even bigger gamble than it first seemed.
The trouble with a package such as yesterday's remains that its costs are unavoidable, while its effectiveness in boosting the economy is unknown. The 2.5 per cent cut in the VAT rate, made at a cost of £12.5 billion, seems unlikely to stimulate consumers to spend in the short term; in the longer term, the package risks undermining consumer confidence since people now know that their taxes will rise in years to come. In particular, the 0.5 per cent increase in National Insurance from 2011 is effectively an income tax rise, affecting everyone earning more than £20,000 a year. The timing of those rises could be damaging given the distinctly optimistic forecasts for recovery on which it is based. As several of the economists we survey today point out, who really believes that this recession will be over by the middle of next year?
Meanwhile the effect on London could be especially problematic, as the Mayor's policy chief, Anthony Browne, warns on these pages. Senior City figures are warning of a “brain drain” from the Square Mile, while London businesses that depend on what higher earners spend could be hit by the planned 45 per cent top tax rate.
The Conservatives have protested at the lack of opportunity to debate the measures fully: no parliamentary time has been set aside. But shadow chancellor George Osborne is in any case making the most of the opportunities the pre-Budget report presents to attack the Government. The divide between the parties is clearer than it has been for years. Mr Darling has bet the farm: now he must hope that his predictions defy the majority view of the likely length and severity of the recession.
C-charge clash
THE Mayor is expected to announce his decision on whether to keep the western congestion charge zone within days: as we report today, the issue is dividing London councils. Hammersmith and Fulham council is at loggerheads with Kensington and Chelsea over the western extension's future.
Hammersmith regards the zone as creating a “Berlin wall” which divides one part of the borough from the other, and is worried about the effect on local businesses. The Royal Borough, meanwhile, says its residents like the reduction in traffic the charge has brought.
But this question has to be looked at from a London-wide perspective. The western extension was inevitably unpopular when introduced. However, to remove it now and allow 30,000 cars a day back in would be a retrograde step. It would force many cyclists back onto public transport, increase car commuting and congestion, and worsen air quality. At a time of pressure on budgets, the Mayor will not want to do without the revenue the zone raises. The solution is to modify the charge so that it still deters car commuters but ends in the middle of the day to allow access to shops and businesses.
And celebrating...
COCKNEY food. It may have taken Spanish chef Ferran Adrià, named best in the world for four years running, to remind us of the delights of traditional London food. Yesterday he sampled stewed eels and pie and mash with parsley liquor at Manze's on Tower Bridge Road; the liquor, he says, reminds him of the salsa verde of the Basque country. But it's hard to know where pie and mash might fit into the 30-course tasting menu at his legendary El Bulli restaurant.
