Conservative Home's expert panel previews the Budget
In advance of today's Budget, ConservativeHome assembled an expert panel of political figures and commentators to outline what they hope to see from today's Budget in their area of interest or expertise. Their thoughts are below and once Alistair Darling has delivered the Budget, we will post their reactions here on Platform later this afternoon.
The Budget should be realistic about the growth situation - planning against a recession at least as bad as the early 1980s and a material fall in the sustainable growth rate of the economy (to perhaps just 2-2.25%), cutting our spending cloth accordingly. The Government should admit that on a recession that bad its previous plans would take spending above 50% of GDP, and that this is unacceptable.
To keep down the growth of spending as a proportion of GDP, it should immediately announce a £50bn reduction in growth in spending between 2008-9 to 2010-11 (e.g., by freezing the cash budget of most departments), with a commitment to seek further reductions of up to £50bn, if necessary, for later years.
In addition, the annual inflation targeting regime should be replaced with a target of average inflation at 3% annually between now and 2015 - with the inflation measure changed to include housing costs.
The temptation for the Government today will be to tax the rich, to set up a political dividing line. The problem is, as the IFS has demonstrated, this wouldn't bring in any extra revenue. Hiking indirect taxes, such as VAT, would bring in revenue, but it would hit consumer spending and clobber the poorest taxpayers, who spend the greatest proportion of their income.
Tax changes that affect the poor should be avoided at all costs. Instead, the Government should radically cut spending. The Government could abolish most of BERR and the RDAs for a saving of around £3 billion a year. Then get rid of the other regional bodies and quangos, like the British Council, that do little for the ordinary taxpayer. Then reform public sector pensions, so that the Government’s unofficial debt doesn’t combine with their new official liabilities to produce a bill British families that is in the trillions.
Last week’s Social Trends report provided a stark reminder of the
decline in family stability during the years of Labour rule. The Child
Poverty Action Group, leading a mass lobby by UK children’s charities,
wants an extra £3bn spent in today’s Budget on benefits and tax credits
for poor families. Darling will probably respond with some tweaks (and
re-announcements) on tax credits and child benefit. But unless payments
are redesigned to incentivise parents raising children together, the
most damaging aspects of child poverty will persist.
A pro-family Budget today would face up to the expensive fiasco of Brown’s tax credit system - which loses £1bn a year in fraud and error plus another £2bn in overpayments, and costs nearly £600m to administer. In its place, a much cheaper and simpler system should be introduced, based on the US Earned Income Tax Credits, to increase work incentives, cut marginal rates, and time limit payments. Savings from reform should be ploughed back into real family support by raising tax allowances, transferable between parents, and by removing the welfare penalty that leaves two-parent households worse off than lone parents.
The best way to get children out of poverty is to encourage parents to stick together and to keep (and share) the money they earn – not to increase their dependency on complex handouts.
Do we really need to go on holiday in Spain? Shall we have dinner at home tonight? What about clothing the kids with supermarket clothes? These are the questions ordinary families are asking themselves as we all prepare for more belt-tightening ahead.
Not only are earnings falling in the downturn, but there is a black hole in the nation's accounts equal to nearly £1,500 per household. That's all going to put more pressure on the budgets of families that still have jobs, as the money will have to be found somewhere.
What we need is a Budget that rewards strivers when consistent with sound public finances and stability. A Budget that enables lower taxes and that is fiscally conservative so we avoid going back into the mire again. And we must fix the economy for the country so we can all enjoy more disposable income in the future.
Firstly, with two of our major banks partly nationalised, there is a risk that they remain zombie banks for years, suffocating the real economy and failing to lend to good companies. In addition to the National Loan Guarantee Scheme that the Conservative Party has been calling for, what about measures to make it easier to start new private sector banks from scratch?
Secondly, when you are running the largest budget deficit since the war, you don't want to do anything that will raise the cost of capital for people who are going to buy the government's enormous debt. Therefore great care must be taken with the crackdown on tax havens announced at the G20 to avoid scaring off foreign investors in our national debt or raising their cost of capital. We could all end up paying the price for easy, populist headlines with a higher debt service cost and possibly a weaker pound.
In terms of cutting quango expenditure, the Government should freeze the budgets of all the executive agencies. With the arrival of deflation, they may even still get a real increase in funds and we as consumers of their services may even witness some public sector productivity growth. The wasteful large print runs of glossy annual reports and other publications etc. should be ended - only electronic copies and for essential hard copies, a print-on demand service only.
As for raising income from quangos, The Government should compel all quangos to introduce Google ads immediately on every page of their websites. These funds would be ring-fenced for paying off the national debt, and BBC revenue to be used to reduce the licence fee. And here are some quango disposals (New Labour-speak for privatisation) to be considered, some quicker than others; Royal Mail, BBC Worldwide, Channel 4, Scottish Water, Glas Cymru, Northern Ireland Water, National Air Traffic Services, Met Office, Trust Ports, British Waterways, CDC Group, Tote, the Banks, Network Rail, the Seabed (Crown Estate).
Mike Morgan-Giles of the think-tank Localis, on Local Government and Housing
Localis believe that all councils who have entered into multi-area agreements - and are seeking to become part of the first wave of devolved sub-regions - should receive the extended powers over regeneration, transport and business policy which the Government is expected to devolve. Currently the Government is considering testing the waters in or two places, but we think that these powers should be extended to all areas seeking them.
Our latest report, launched yesterday, highlights the critical state of social housing in the UK. This area of policy needs a critical shake-up. To achieve this, firstly, social housing tenants should be provided with higher personal subsidies, replacing the current capital grant regime, which should lead to higher financial gains to Registered Social Landlords and Councils - allowing them to build as many, if not more, new homes than are currently being built. Further incentives should be provided to tenants to encourage them to buy part shares in their houses.
This Budget will have serious consequences for public spending in Wales. The Chancellor’s planned efficiency savings could cut the Welsh Assembly’s budget by up to £1bn, a decision which will undoubtedly cost jobs and services in devolved areas such as health, education and local government.
In Wales, we have repeatedly called for the Labour-Plaid Cymru Assembly Government to plan for this by re-focusing budgets onto frontline public services instead of the expensive gimmicks which have been the hallmark of this administration.
A decade of Rhodri Morgan and Gordon Brown’s economic policies has left Wales with the highest unemployment rate of any UK nation, the fastest falling house prices, and as the poorest part of the UK. That’s why this Budget must help businesses by getting credit flowing and to protect jobs; why it must inject confidence back into the housing market; and why it must support savers.