December 9, 2009 10:20 pm

Read his lips: more new taxes

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The jibe against Labour chancellors is that in the end they always run out of money. The twist provided by Alistair Darling is that having run out of money, he nevertheless plans to go on spending.

With borrowing hitting £178bn this year, the chancellor blithely committed to raise expenditure on hospitals, schools and the police. This will be bolstered by a punchy 1 percentage point increase in national insurance contributions in 2011 instead of the 0.5 percentage point rise previously announced.

As declarations of electoral intent go, it was a strong one. Read his lips: more new taxes. That will further alienate business from Labour. The private sector had hoped the chancellor would speed up spending cuts, or provide full details of how he would reduce costs by 14 per cent over three years. Mr Darling disappointed on both counts.

Richard Lambert, director-general of the CBI, the employers’ organisation, had his very own Digby Jones moment, railing against a surprise NI increase as “an extra jobs tax”, just as his Brummie predecessor once had. The raid on salaries, to raise £3bn in the first year, took the wind out of the sails of pundits who had anticipated that the PBR would be a declaration of class war. Anyone earning more than £20,000 a year will be hit, including the aspirational chardonnay-drinking wing of the proletariat.

However, Mr Darling had some good news for old-school class warriors. First, he cut duty on bingo, that heady pastime of the low-waged. Second, he slapped a 50 per cent tax on City bonus pools, payable by the employer but still calculated to diminish pay-outs to employees.

Banking accountants are already devising schemes to dole out bonuses in commodities prized by investment bankers but unfamiliar to tax inspectors, such as Spearmint Rhino vouchers. But the capacity of the levy to raise the promised £500m is irrelevant. Its utility for Labour is as a political coup de théâtre. It positions the government as a champion of consumers and small businesses against the banks, even though Labour has, if truth be told, granted them a lucrative oligopoly.

Mr Darling claimed that bankers were financing help for those rendered jobless by the credit crunch. This, apparently, was restorative justice akin to Asbo kids cleaning up their own graffiti. Similarly, the chancellor is strong-arming big banks into backing a £500m growth capital fund to provide loans to struggling small businesses. Combined with a £500m extension to the enterprise finance guarantee, the move represents a welcome attempt to unlock more credit for companies that have been treated dismissively by lenders.

Cutting corporation tax to 10 per cent on income from patents was the most eye-catching of a small clutch of business-friendly moves in the PBR. It should help the UK’s impressive cluster of biomedical businesses compete better worldwide and lure footloose enterprises to hotspots such as Cambridge, Oxford and London. One might mischievously argue that British biotech companies make no profits anyway, so the cost will be low. However big pharmaceutical companies will also benefit.

One racing certainty is that under a government of either stripe, the axe will fall heavily on the bloated £12bn business support budget. Businesses should feel intensely relaxed about this. Most of the money is wasted. Redundant public servants could be re-employed in utility banking. Their experience in running monolithic customer-hostile organisations would make for a good fit.

But overall, the PBR failed to allay worries about Labour’s willingness and ability to return government finances to a healthy balance. The party has form for failing to deliver on promises: an abortive attempt to cut red tape is just one example.

Class, or class allegiances, also come into it. These days top Tories, such as David Cameron and George Osborne, bear no prejudice against working-class people. Some of their best servants are working class, after all. But the Conservative leadership, unlike senior Labour politicians, has the autonomy and heritage to tame the public service unions. Remember Maggie and the miners.

After next year’s election, spending cuts by either party are likely to trigger an industrial relations roughhouse. Victory for the government will depend on the remorseless application of pressure against the opposing team, just as it does for a winning side in the Eton wall game. A cabinet packed with Old Etonians might then have its advantages.

jonathan.guthrie@ft.com

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