Future pain is price for small gain

Dec 1 2008 By David Bell

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HAROLD Wilson debased our currency and infamously promised the pound in our pocket would not be devalued.

I suspect when the political epitaph of our latest Labour Prime Minister Gordon Brown is written it will remember him as the man who boasted “no more boom and bust” and drove Britain Inc down the road towards bankruptcy.

The Pre Budget report has laid bare the already dire state of the country’s finances. Remarkably, we have emerged from the longest period of sustained growth on record up to our ears in debt having exceeded borrowing targets for five years in a row.

In the present financial year, Chancellor Alistair Darling intends to borrow £78billion – twice the original forecast only six months ago. This is more in real terms than we spent defeating Kaiser Bill’s armies in World War I.

Then it climbs to a historic peak of £118billion and our National Debt, which has taken centuries to build up ,will be doubled in just five short years in a £1trillion borrowing binge.

Best placed of any industrial nation to weather the recession? The Government’s claim is rubbished by International Monetary Fund experts who have looked at the books and warned we are most at risk of going under.

The country’s creditworthiness is classed as riskier than either Spain or Diagio, the makers of Guinness.

But today is the day of the Government’s great £12.5billion gamble. That we can be bribed into the shops on a spending spree to kick start the economy because VAT has been cut from 17.5 per cent to 15 per cent.

Will that make you rush down to the Bullring to save the princely sum of around £10 on a 32 inch £500 flat screen TV?

The gesture is paltry compared with the 20 per cent and 25 per cent off one day discounts by Marks & Spencers and Debenhams. Other High St retailers, desperate to shift stock, even have half price deals.

A post budget poll by Yahoo found 86 per cent of shoppers were unmoved by the tax cut.

And retail experts have given it a good kicking. Simon Wolfson, chief executive of the Next clothing chain, believes the temporary reduction in VAT defies all economic logic.

“The change will be administratively expensive, do nothing to stimulate demand, and leave few feeling better off,” he argues.

Justin King, Sainsbury’s chief executive, was just as blunt: “It’s a drop in the ocean. I don’t think it will make any difference.”

A device that makes you spend a lot to save a little is a curious choice when the stated aim of the Government is to put more money in our pockets.

A bigger bang for our bucks would have been achieved by income tax cuts – the Obama option for America’s economic woes. A 4p reduction would be worth £1,000 to somebody on £30,000 a year.

A cut in National Insurance would not only make us better off but help employers to preserve jobs.

And slashing VAT altogether on gas and electricity bills would have been given a rather warmer public welcome.

Financing this dodgy gamble means tax increases and spending cuts for years to come.

It could take a decade to get Britain’s public finances in balance again.

We’re looking at a small short term gain for long term pain.