The chancellor delivered his budget yesterday against an un-envious background. The whole world is in recession, trade has fallen off a cliff and all countries are facing the dilemma of fiscal stimulus v balanced budgets. In those circumstances yesterday’s budget got the balance right.
Let’s start off with what seems to be the Tories strongest line of attack – with the borrowing numbers. Borrowing in 2009/10 will be £175bn, 12 per cent of GDP. That is a sharp increase compared to the chancellor’s forecast back in November, and takes borrowing to an historic high. But in the US, the Congressional Budget Office is forecasting a deficit there of 13 per cent of GDP. Moreover, because the UK government repaid debt between 1997/8 and 2006/7 – down from 42.5 per cent to 36 per cent of GDP (despite Tory claims to the contrary) we can afford the additional spending now. Indeed, we can’t afford not to spend this money. The majority of the additional spending reflects lower tax revenues – tax revenues as a share of GDP are down 1.2 per cent (tax take has fallen by more than the real economy) – combined with higher payouts on tax credits and benefits as the economy slows. The discretionary fiscal stimulus in the budget was worth around £5bn, on top of the £20bn in November’s pre-budget report. So, the increase in borrowing reflects the downturn in the global economy rather than reckless government spending.
Let’s consider what would happen if instead we pursued Cameron’s strategy. We wouldn’t have had the PBR or today’s package of measures or the bank re-capitalisation and bailout, estimates which suggest have saved around half a million jobs. Instead of a £25bn fiscal stimulus, Cameron has called for spending cuts worth £5bn to start right now. Cameron, against all the historical evidence and G20 consensus, believes we can cut our way out of recession. He is hopelessly, and dangerously, wrong. The only way we will be able to pay back our borrowing is through getting growth back on track. Today’s budget is another step along the line in doing this. As an aside, Tory blogger, Iain Dale was on a panel with me on Sky News yesterday. He argued that the government should have allowed a bank to fail – as the US allowed Lehmans to fail. Having watched HBOS come to its knees and contemplating the impact of that on the 74,000 people who work there, including 14,000 in West Yorkshire, I was reminded on how callous the Tories can be.
For Leeds West, the seat I hope to represent after the next election, a couple of specific announcements today stand out in really helping people:
• the guarantee of a training or education place for every sixteen year old – young people in Leeds West have benefited from a trebling of apprenticeships in ten years, and this policy builds on that and ensures that young people are not confined to a scrap heap as happened in the 80s and 90s.
• support for the housing market and construction industry – with £500m to kick start house building and money for local authorities to build more carbon neutral homes. This is a double benefit for Leeds West – the number of social/council homes in Leeds has halved in a decade so the demand for housing is high, and we have a lot of people working in construction so that’s extra jobs too.
• investing in our future prosperity – in green jobs, creative industries and high-tech manufacturing – gives hope that out of the ashes we will re-build a strong more diversified economy.
Yesterday we had a forward looking budget, protecting people right now but also putting in the building blocks for the future recovery. Of course, the challenges ahead are huge and the economy could still get worse before it gets better, but the best chance we have of emerging stronger from this recession is investing in our future prosperity. At the next election we should campaign on a platform of hope and optimism about our future.