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Monday’s pre-budget report D-Day for economy
d=”standfirst”>You need look no further than the high street to gauge the state of the economy. John Lewis reckons its Christmas sales will be “in single digits” below last year’s; Marks & Spencer yesterday ran a one-day 20% discount promotion (including wine and Champagne) and Wine Rack/Thresher has reintroduced its 40% off voucher. Even Gordon Brown has admitted that Britain is in recession.
That makes Monday crucial. Alistair Darling presents the Pre-Budget Report, but in reality it is a Budget, and the most important since the Second World War. The Treasury’s books are awash with red ink thanks to Brown’s borrowing, this year’s bank rescues and plummeting corporate tax returns. Further, the chancellor has to find the funds to pay for compensation to those who lost out by scrapping the 10p tax band, the deferment of fuel duty increases and his stamp duty concessions. Add to that the need to reverse existing plans for higher taxes and curbs on public spending, and already he has to fund an extra £11 billion of debt before he can think of new measures to cushion the crisis.
He needs to pull a rabbit out of the hat. In Washington 10 days ago the leaders of the world’s 20 largest economies promised co-ordinated action to counter the world’s economic woes. “Co-ordinated” was the key word. All have played the interest rate card but Darling is the first on stage with fiscal measures, so Britain’s package will set the tone. If he hits a wrong note, the markets will react even more viciously than the Strictly Come Dancing judges did to John Sergeant’s performances; this year’s fall in the value of sterling will look like a mild decline compared with what could follow.
Darling is expected to bring forward plans to refurbish schools and hospitals to help rescue the construction industry and temper the rising rate of unemployment. Transport spending will be accelerated. But what the economy really needs is an injection of consumer spending to bolster tattered confidence. The lower interest rates (if passed on by the banks) will help, but to improve sentiment Darling needs to cut some direct taxes (even temporarily) to put extra pounds in December pay packets.
Don’t hold your breath about excise duties, however. Remember the Budget in the spring? Only seven months ago Darling said:
“In 1997, the average bottle of wine bought in a supermarket was £4.45 in today’s prices. If you go into a supermarket today, the average bottle of wine will cost about £4.
“Alcohol duty rates will increase by 6 per cent above the rate of inflation. Beer will rise by 4p a pint, cider by 3p a litre, wine by 14p a bottle and spirits by 55p a bottle.
“Alcohol duties will increase by 2 per cent above the rate of inflation in each of the next four years.
“It is only because I have taken these decisions on alcohol (and on closing tax loopholes) that I am able to provide additional support for families and lift more children out of poverty.”
On Monday he needs to help those self same families and children and he has to find some money from somewhere. A damascene conversion on duties would help drinks companies and retailers, but don’t bet on Darling seeing the light.
db Finance on Friday 21.11.08