A Budget with looming shadows

There were no rabbits in his hat. Hanging over Darling's speech was the spectre of global economic u

First it was going to be the green Budget. Then it was the anti-booze Budget, next the steady-as-she-goes Budget and, just at the last moment, the child poverty Budget. Budgets these days have to be all things to all people, or at least most things to as many people as possible. With a growing political consensus over the priorities of government, this would have been true even if it had been George Osborne standing up in parliament on 12 March. Budgets must be business-friendly and yet tackle inequality; they must give generously to public services while cutting the tax burden; and they must address the immediate issues of the day - this year it is the turn of first-time housebuyers, supermarket plastic bags and polluting cars.

In the end, Alistair Darling's first Budget has been the "hard truths" Budget. Under the pressure of an ever-slowing economy, the Chancellor was forced to outline the bleakest financial situation since Labour came to power in 1997, although not quite as grim as some predicted. He should be congratulated for avoiding the temptation to pull last-minute rabbits out of hats. "Not really his style," according to one aide.

As expected, he downgraded his forecast for growth for 2008, outlined in his Pre-Budget Report as being between 2 and 3 per cent, to between 1.75 and 2.25 per cent. Scare stories from the weekend before the Budget suggested he would need to raise £240 per household in taxes to plug a £5bn black hole in the public finances. The sums may appear complex and confusing, but much of the Chancellor's work is simple arithmetic - as revenues to the Exchequer drop, he either has to tax more or borrow more to honour the government's spending plans. In the end he will do a bit of both, but either way, Darling is in a dark place.

As he prepared the Budget in the full knowledge that the Bank of England, the European Central Bank and the US Federal Reserve were all pouring billions of dollars of funds into the money markets to avoid a global recession, he must have felt like the unluckiest man alive. Alone at the Despatch Box with just a glass of tap water for company, Darling was on the spot and it was his job and his alone to inform Britain of the naked truth about the state of the economy. His contention that the present situation is not as serious as during the worst Tory years is basically sound. Britain is still a high-employment, low-inflation economy. Growth may be slowing down but it had, indeed, been sustained for 62 quarters, a better record than for any of our major competitors.

It is also true that Darling has been dealt a duff hand, and not just by the American "sub-prime" mortgage crisis (for which no one can hold him responsible) but also by decisions of his predecessor, who built an edifice of public spending commitments on the assumption of continued growth. But, to an extent, politicians create their own luck and much of Darling's speech was taken up with atoning for the political miscalculations of his Pre-Budget Report in October. He held his nerve on the £30,000 levy on "non-domiciles", who avoid paying tax in Britain by moving their financial affairs elsewhere, but was forced into concessions. It is thought a deal has also been reached with the US Treasury on payments from American citizens. The Chancellor's attempt to simplify capital gains tax by introducing a flat rate of 18p had to be revised after he came under pressure from the business community. In less difficult times, such changes would have been seen as tweaks. In the present atmosphere, however, everything Darling does is scrutinised by the City for signs of indecisiveness.

As the analysis of the Budget plays out, attention will inevitably turn to the reaction in the Square Mile, where the knives have been out for Darling almost from the moment he arrived at 11 Downing Street. But some of the wisest economic heads in the country are turning to another area of grave concern: the state of our public finances. It is of course true that everyone is affected by the mood of Britain's financial markets, but a far more immediate impact will be felt as the money for schools and hospitals starts to dry up.

One problem for Darling is the growing national debt. The Chancellor's best Budget soundbite - that Labour has "turned welfare into work and borrowing into wealth creation" - is at the very least arguable. The Chancellor made much of Labour's record on borrowing. But David Cameron was right to raise the issue of Northern Rock. The so-called "sustainable investment rule", which states that net public borrowing should remain at or below 40 per cent, has already been shaken by the nationalisation of the high street bank, whose liabilities in reality push the figure closer to 45 per cent. If estimates of the economic slowdown are correct, the borrowing necessary to plug the hole in the public finances will push this figure even higher. In fact, even Darling's estimates push it within a percentage point of the 40 per cent danger point.

The investors' verdict

Then there is the looming shadow of the government's Private Finance Initiative schemes, which were designed specifically to keep borrowing off the Treasury's balance sheet. These projects, which use private funding for large public projects such as schools and hospitals, will soon be included as part of the national debt to bring Britain in line with International Financial Reporting Standards. At the same time, liabilities from public sector pension schemes, which have been badly hit by the international credit crunch, will also contribute to the growing debt. Some estimates suggest that the combined liabilities of pension and PFI schemes would bring the proportion of debt to 100 per cent of GDP.

In one sense, the sustainable investment rule is just an arbitrary measure, set by the government to measure its own economic competence. What really matters is the attitude of global financial institutions to such profligacy, and investors' preparedness to put their money into new projects. In the new period of economic uncertainty, the British public would certainly begin to notice if plans for a shiny new hospital or school were put on ice. Already concerns have been raised about the slow progress of the government's PFI-funded Building Schools for the Future programme.

The real issue is that we don't know the full consequences of the slowdown for the public purse. New Labour has never been here before. A recent article by Paul Gosling in Public Finance magazine put it succinctly: "Underlying everything is a fog of uncertainty. The use of 'financial engineering' and the complex hedging of financial risk means there is very real confusion about exactly who has lost what from the sub-prime crisis - and that is affecting almost everything on the world's financial markets."

Darling's first Budget was just the sort of solid, unflashy affair demanded in the circumstances. Many of the details will be welcomed by people Labour should care about: children, the poor and the old. But it will all mean nothing if he fails to address that fog of uncertainty afflicting the public finances.

This article first appeared in the 17 March 2008 issue of the New Statesman, Iraq: the war that changed us

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Find the EU renegotiation demands dull? Me too – but they are important

It's an old trick: smother anything in enough jargon and you can avoid being held accountable for it.

I don’t know about you, but I found the details of Britain’s European Union renegotiation demands quite hard to read. Literally. My eye kept gliding past them, in an endless quest for something more interesting in the paragraph ahead. It was as if the word “subsidiarity” had been smeared in grease. I haven’t felt tedium quite like this since I read The Lord of the Rings and found I slid straight past anything written in italics, reasoning that it was probably another interminable Elvish poem. (“The wind was in his flowing hair/The foam about him shone;/Afar they saw him strong and fair/Go riding like a swan.”)

Anyone who writes about politics encounters this; I call it Subclause Syndrome. Smother anything in enough jargon, whirr enough footnotes into the air, and you have a very effective shield for protecting yourself from accountability – better even than gutting the Freedom of Information laws, although the government seems quite keen on that, too. No wonder so much of our political conversation ends up being about personality: if we can’t hope to master all the technicalities, the next best thing is to trust the person to whom we have delegated that job.

Anyway, after 15 cups of coffee, three ice-bucket challenges and a bottle of poppers I borrowed from a Tory MP, I finally made it through. I didn’t feel much more enlightened, though, because there were notable omissions – no mention, thankfully, of rolling back employment protections – and elsewhere there was a touching faith in the power of adding “language” to official documents.

One thing did stand out, however. For months, we have been told that it is a terrible problem that migrants from Europe are sending child benefit to their families back home. In future, the amount that can be claimed will start at zero and it will reach full whack only after four years of working in Britain. Even better, to reduce the alleged “pull factor” of our generous in-work benefits regime, the child benefit rate will be paid on a ratio calculated according to average wages in the home country.

What a waste of time. At the moment, only £30m in child benefit is sent out of the country each year: quite a large sum if you’re doing a whip round for a retirement gift for a colleague, but basically a rounding error in the Department for Work and Pensions budget.

Only 20,000 workers, and 34,000 children, are involved. And yet, apparently, this makes it worth introducing 28 different rates of child benefit to be administered by the DWP. We are given to understand that Iain Duncan Smith thinks this is barmy – and this is a man optimistic enough about his department’s computer systems to predict in 2013 that 4.46 million people would be claiming Universal Credit by now*.

David Cameron’s renegotiation package was comprised exclusively of what Doctor Who fans call handwavium – a magic substance with no obvious physical attributes, which nonetheless helpfully advances the plot. In this case, the renegotiation covers up the fact that the Prime Minister always wanted to argue to stay in Europe, but needed a handy fig leaf to do so.

Brace yourself for a sentence you might not read again in the New Statesman, but this makes me feel sorry for Chris Grayling. He and other Outers in the cabinet have to wait at least two weeks for Cameron to get the demands signed off; all the while, Cameron can subtly make the case for staying in Europe, while they are bound to keep quiet because of collective responsibility.

When that stricture lifts, the high-ranking Eurosceptics will at last be free to make the case they have been sitting on for years. I have three strong beliefs about what will happen next. First, that everyone confidently predicting a paralysing civil war in the Tory ranks is doing so more in hope than expectation. Some on the left feel that if Labour is going to be divided over Trident, it is only fair that the Tories be split down the middle, too. They forget that power, and patronage, are strong solvents: there has already been much muttering about low-level blackmail from the high command, with MPs warned about the dire influence of disloyalty on their career prospects.

Second, the Europe campaign will feature large doses of both sides solemnly advising the other that they need to make “a positive case”. This will be roundly ignored. The Remain team will run a fear campaign based on job losses, access to the single market and “losing our seat at the table”; Leave will run a fear campaign based on the steady advance of whatever collective noun for migrants sounds just the right side of racist. (Current favourite: “hordes”.)

Third, the number of Britons making a decision based on a complete understanding of the renegotiation, and the future terms of our membership, will be vanishingly small. It is simply impossible to read about subsidiarity for more than an hour without lapsing into a coma.

Yet, funnily enough, this isn’t necessarily a bad thing. Just as the absurd complexity of policy frees us to talk instead about character, so the onset of Subclause Syndrome in the EU debate will allow us to ask ourselves a more profound, defining question: what kind of country do we want Britain to be? Polling suggests that very few of us see ourselves as “European” rather than Scottish, or British, but are we a country that feels open and looks outwards, or one that thinks this is the best it’s going to get, and we need to protect what we have? That’s more vital than any subclause. l

* For those of you keeping score at home, Universal Credit is now allegedly going to be implemented by 2021. Incidentally, George Osborne has recently discovered that it’s a great source of handwavium; tax credit cuts have been postponed because UC will render such huge savings that they aren’t needed.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle