Wednesday, December 09, 2009

What Can We Expect From the PBR?

I'm not going to be around for much of the rest of the day to comment on PMQs or the Pre Budget Report as I am just about to leave the office to attend a book sales conference in Berkshire. Hell and damnation.

However, before I go, let me offer a few thoughts on what Alistair Darling is likely to serve up for us later. I wish I could say that I believe he will put the economic interest of the country first. But I can't. I wish I could say that I believe he will put the national interest first, but I can't. This Pre Budget Report will be deeply political and have more than half an eye on the coming general election. And we should all ask: is this the Chancellor's Pre Budget Report or the Prime Minister's?

The thrust of the Chancellor's proposals, it seems from the pre-briefing, is to make a headline of a tax on bankers' bonuses. As if that is the major problem facing the nation. It isn't. Yes, I too find it galling that many of them seem intent on taking huge bonuses when they are part of failing, partially state-owned, institutions. if Darling is going to do anything about this he shouldn't be creating new windfall taxes, he should be using the government's controlling stake in RBS and Lloyds TSB to insist that the bonuses don't go ahead. He may make headlines and even receive public support - and even possibly the support of the Opposition - but it's just a figleaf to mask the impending debt crisis which this country faces.

If Darling was taking seriously the need to cut government borrowing and in turn public spending, he would be instituting massive cuts immediately, rather than wait until 2011, coincidentally after an election has taken place. He would also not be ruling out spending cuts in education, health and the police. The public know that drastic action has got to be taken, and taken now. They see countless examples of government programmes which could easily be cut - some with less pain than others. And yet the government still sends out the message that it can be done without any real heartache. It can't.

They use the argument that is you turn off the spending tap now, you risk the recovery. Er, what recovery? We are still mired in recession. The fiscal stimulus hasn't worked. I see no sign of growth in the new year either. The VAT rise will depress things and until confidence returns, entrepreneurs will not invest.

The international money markets will be watching this PBR in a hawk like fashion. They will be looking for signs that the government isn't serious. And if they spot any such signs we will be a step further to losing our AAA credit status. And if that happens, the cost of borrowing goes up and its availability diminishes. And so we get into a deep spiral of having to cut spending even firther to service increased levels of interest payments. That is the doomsday scenario, but if Alistair Darling isn't careful, it's where we are heading. And I take no pleasure in saying that whasoever.


JoeF said...

Darling- We will help the economy by cutting the basic rate income tax to 10% and spending £100bn to subsidize energy for the poor and create 2 million jobs, eliminating the unemployment problem.

We will help pay for this by introducing a higher rate of 500% tax on incomes over £100,000 pa.

Then in 2011 we will find £200bn in efficiency savings and balance the budget, no problem...

Man in a Shed said...

Just remember how many supposed ex-Marxists sit on the Labour benches.

Destroying the UK may well being their prime objective. They have just learnt the trick of not telling people about it.

Will said...

I work in IT for a large european investment bank in the city (which has not been bailed out - or even needed to raise capital).

I don't make a huge amount (less than an MP!) But I am expecting my annual bonus - which is deserved because the bank has been profitable this year and I have had a good result on my annual review.

Yet according to Robert Peston, Darling will be punishing me and my employer for this!

How can the govt justify this?

Scary Mary said...

You think that people in state owned banks shouldn't get bonuses? Why on earth not? I work for one, and if I don't feel like I am being looked after and paid my market rate I will leave and go to Barcap. If I do this, and other talented people do this, then the taxpayer is left with a big empty shell of a bank and billions of pounds of debt. RBS should be over-paying in order to make themselves attractive to new people who will help turn it around.

Anonymous said...

There is a little thing called "bankers revenge" and Brown will be getting a knife in the back, these guys will not take prisoners.

Childprotector said...

All Chancellors try to buy elections - the Conservatives have been no exception in the past. That is why the Tories' proposed Office for Budgetary Responsibility could, if it is prepared to name and shame when the national interest is subordinated to the political game, be a major improvement.

Libertarian said...


The government can justify taxing at extortionate rates the bonus you earned because the voters are lemmings and will go for anything with a soundbite attached.

If you want this to end vote UKIP

We believe in business, wealth and job creation

Anonymous said...

The problem with this bankers-bonus tax is that it violates the Rule of Law.

The Rule of Law does not mean that everything the State does it legal, e.g. there's a law which exists which says the State can act as it does.

The Rule of Law means that *the actions of State are constrained and are predictable and are set the rules of law*, such that citizens of the State can predict in advance how the State will use its power over them.

Introducing new laws to do whatever it is you happen to want to do just at the moment (like taxing bankers bonuses at 50%) directly violates the Rule of Law; it is unpredictable and it is arbitrary.

Anonymous said...

I wrote:
> *the actions of State are constrained
> and are predictable and are set the
> rules of law*

I missed a "by"...

"and are set BY the rules of law*.

JMB said...

Why was Jacqui Smith on the front bench next to Darling? Is she going to be put back in the Cabinet>

Unsworth said...


"Is she going to be put back in the Cabinet"

Well she's certainly trying quite hard. But I'd sooner see her put back in her box.