Sunday, 20 June 2010

Preparing for the budget

The sentence being used in briefings for the Sunday press on the Budget was 'A budget that is popular the day after is not a good budget'. The public has been prepared for medicine which will be nasty, but may turn out to be a little bit less unpleasant than expected.

Any VAT increase cannot be implemented immediately for practical reasons. Indeed it is difficult to see how it could be introduced until the autumn and it would not be too popular just before Christmas. So I would not expect it to be intoduced until after the January sales and possibly not until April.

One off the wall prediction which will probably be wrong: an increase in the current VAT rate of 5 per cent on domestic fuel. It is below the EU average of 8 per cent and could be sold as a carbon reduction measure.

The fiscal Nimbyists were out in force today. People in Sheffield were upset because of the withdrawal of the loan to Sheffield Forgemasters, but if it is such a viable project, why can't it be funded commercially? On Midlands television, people from Bromsgrove were complaining because they won't get an admittedly needed new station.

Although talk of a double dip reception is overdone, the Government does need to be careful about how it cuts capital projects. These are usually cut severely in times of public expenditure restraint, because it is a way of achieving quick results in cutting spending.

However, the downside is that necessary infrastructure improvements which can contribute to economic growth do not occur. The construction industry is a labour intensive one and has already been hit hard by the downturn in house building which may be intensified by the Government's promised 'Nimby's charter' to block development.

It is clear that the Government is prepared to 'think the unthinkable' about benefits and Frank Field has been brought back to finish the job that he should have been allowed to undertake by New Labour. 'Two brains' Willetts made it clear yesterday that while some universal benefits would always be part of the welfare state, there was a need to re-consider the balance between them and selective benefis.

With increasing life expectancy, generous public sector pensions are no longer affordable and John Hutton has been brought in to tackle this thorny problem. He was immediately denounced by the soon to be ennobled Prezza as a 'collaborator': at least he didn't use the phrase 'class traitor'. As someone remarked it's the revenge of the Blairites.

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