Yesterday the Sunday Times carried reports of an interview with Chancellor Alistair Darling admitting that he and his Treasury officials had got it wrong over the length and severity of the recession and that he will be forced to tear up his economic predictions. The Today programme this morning bought confirmation, if any was needed, that the assumptions made in last yearâ€™s Pre-Budget Report (PBR) were indeed too optimistic. Although the PBR signalled a fiscal tightening (ie less spending or more taxing year on year) of about Â£38 billion a year the Institute of Fiscal Studies (IFS) reckons we â€œneed about the same againâ€. The IFSâ€™s paper published today spells out how another Â£40 billion will need to be taken out.
I was pleased to hear Shadow Chancellor George Osborne later on the Today programme, click here and move the slider to 7:42, say:
Well I havenâ€™t ruled out further tax rises although I will work hard to avoid them because I think where the bulk of the strain needs to be borne is on spending restraint.
Donâ€™t forget that although the PBR talked about both employerâ€™s and employeeâ€™s National Insurance going up by 0.5% and a new top rate of tax at 45%, both after the next election naturally, this only amounted to about one fifth of the tightening required, four fifths came from Labourâ€™s cuts which the government has done its utmost to avoid talking about. Indeed Gordon Brownâ€™s overturning of his own fiscal planning regime by cancelling the summerâ€™s planned comprehensive spending review demonstrates just how bloody public spending is going to get. As Andrew Rawnsley in the Observer said two weeks ago:
A comprehensive spending review was due this summer. Gordon Brown has quietly told Alistair Darling to scrap it. To publish forward-spending figures now would be to advertise the terrible state of the public finances in neon lights and stick a “Kick Me Here” sign to the backsides of both the chancellor and the prime minister. It would also unleash the bloodiest Whitehall spending negotiations in a generation. Below the radar, the Treasury is already trying to do some mild slashing and burning, seeking “efficiency savings” of Â£5bn from departmental budgets. Some of the spending ministers are squealing about that even though it is peanuts in the context of the awesome size of the problem.
Public spending is going to get very difficult very soon. Whoever takes over after the next election is going to have to make some truly eye-watering spending decisions. Make no mistake that it is in large part the fault of one man â€“ Gordon Brown.