On the bright side

14 Mar 08
MIKES THATCHER | They may appear to be dour Scots, but both Alistair Darling and Gordon Brown share a rosy, if not rose-tinted, view of the economic prospects facing the country.

They may appear to be dour Scots, but both Alistair Darling and Gordon Brown share a rosy, if not rose-tinted, view of the economic prospects facing the country.

In his first Budget this week as chancellor, Darling forecast a marginal slowdown in growth, no breach of the fiscal rules and an inflation rate settling back to its 2% target next year.

Brown had the same glass-half-full attitude when he occupied 11 Downing Street, but he was operating in calmer financial waters.

The credit crunch has sent a tsunami through the global economy, threatening a worldwide recession. And yet the impact in the UK, according to Darling, is a reduction in growth of a mere quarter point, compared with his earlier forecast.

Borrowing continues to rise, but the sustainable investment rule is safe in his hands. Net debt will not exceed 40% of national income, although it will come mighty close at an estimated 39.8% in 2010/11.

This leaves so little margin for error that one has to hope Darling turns out to be a lucky chancellor. Having already experienced the nationalisation of a bank, a tax U-turn and a data debacle, the evidence so far does not suggest that he is.

He’ll certainly need some good fortune to achieve the government’s target of halving child poverty by 2010. There were some useful measures in the Budget – including changing the rules for housing and council tax benefit – but it is unlikely to be enough.

The Budget initiatives should lift 250,000 children out of poverty. However, that will still be half a million short and there is very little time left.

If the economy takes a tumble and unemployment starts to rise (Whatever works), next year’s Budget could be a very painful experience for the chancellor.

For all his talk of stability and resilience, Darling is just postponing the difficult decisions. He hopes that things can only get better when, in reality, they are likely to get much worse.

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