Alistair Darling’s task in the pre-Budget report was to improve the credibility of Britain’s deficit reduction plans for the public, the markets and for those running monetary policy. I am convinced this report will fail on all counts.
With a couple of hours digging through the numbers, the report strikes me as deeply political and its presentation extremely unhelpful. This is not the way to gain credibility. Why?
What the chancellor thinks is good politics ran through all aspects of the PBR and that, this time, does not seem to be good economics.
I am not too concerned about the tax on bankers’ bonus pools. Bankers are furious. But the one-off 50 per cent levy on banks’ bonus pools is a purely political stunt to avoid images of bankers off to buy Porsches after Christmas, swigging champagne as they are chauffeured to the showrooms. Banks will simply defer the bonuses on an informal basis until after the election when bankers will get the money they believe is rightfully theirs.
The paucity of detail on public spending cuts is almost beyond belief. In a report where the main economic numbers are very similar to those in the Budget, the Treasury seems to have made almost no progress in working out how it will cut public spending. All we hear are vague noises about protecting health, schools and police, without any indication on how large these budgets are or what government forecasts look like for debt interest or social security payments.
The impression is that the Treasury and government is trying to hide the truth on spending from the public, concentrating instead on trying to match the Conservatives’ spending pledges. A whole raft of departmental spending will be cut in cash terms, and by around 15 per cent in real terms. This needs to be thought through, but there is no evidence of such thinking in government.
The presentation of today’s report – apart from the usual Treasury website crash – seemed designed to prevent basic analysis of the measures and forecasts. We were told in advance that the Treasury had learnt that transparency was important and people should be able to find what is going on from the published documents. But none of that has come to pass. There is no split of total spending between departmental limits and annually managed expenditure (though the Treasury has these numbers internally), no forecast of debt interest beyond 2011, nor of social security.
None of this will stop us, or others, estimating the spending cuts in government departments, but it should not be too much to ask government to have these crucial figures ready and available for the public.
The PBR was supposed to enhance the government’s credibility with voters, markets, and economists – to reassure us that it will be able to reduce Britain’s deficit as the economy recovers. When politics triumphs so spectacularly over economics and transparency, such credibility is destroyed. What a wasted opportunity.All FT coverage on the pre-Budget Report is here: www.ft.com/pbr