Page last updated at 18:09 GMT, Wednesday, 22 April 2009 19:09 UK

Budget speech dissected

Budget word cloud

With the UK in recession, unemployment rising and government borrowing at record levels, this Budget was one of the most closely watched and highly scrutinised in recent years.

Below we take key sections of the chancellor's speech and look at the story behind his carefully chosen words.


Today's Budget will take Britain through the most serious global economic turmoil for over 60 years. The impact is being felt in every continent, country and community.

The first major theme of the chancellor's Budget was not the UK recession, but the global one.

Indeed, seven of the first nine mentions of the word referred to the downturn affecting the rest of the world.

The chancellor - not for the first time - was keen to emphasise the international nature of the crisis, that the UK is not alone in this and to argue that it is not the worst affected.

In the last few months, world trade fell - and while our exports are down 14%, exports in Germany are down 21%, in China 26%, and in Japan 45%.


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His choice of countries is not a random one. Each is a major exporter that has suffered a significant drop-off in demand for its goods, and to a greater degree than in the UK.

After emphasising the £20bn-worth of measures the government has introduced since November's pre-Budget report to help pensioners, mortgage holders and families on low incomes, he turned to the state of the UK economy.

My forecast for GDP growth for the year as a whole will be minus 3.5%, in line with other independent forecasts.

This predicted contraction is the worst in modern times.

It is also much worse than the minus 0.5% the chancellor predicted in his pre-Budget report in November.

The economic situation has deteriorated quickly and significantly in the past few months, but Mr Darling's figure is even worse than the prediction the Bank of England made in February of a 2.9% contraction.


Next year, because of the pick up in world demand, the continuing benefit of lower prices, and the substantial recovery measures put in place, I am forecasting growth of 1.25% in 2010.

The independent predictions suggest - on average - that growth will be just 0.3% the year after next. The International Monetary Fund is suggesting the UK economy will still be contracting by 0.4%.

From 2011, I am forecasting that the economy will continue to recover, with growth of 3.5% from then on.

After downgrading forecasts for 2009 and 2010, he upgrades his prediction for the state of the economy in 2011.

It is much more optimistic than independent forecasts and it is higher than the long-term average growth rate for the UK economy. It is even more optimistic than the 3% predicted in the pre-Budget report.

BBC political editor Nick Robinson suggests the chancellor might have seen it as his duty to be optimistic so as not to risk talking the UK into an even worse recession.


Many countries have also intervened to strengthen their banking systems. My public finances forecasts today include a provisional estimate for the potential cost of this - totalling 3.5% of GDP.

Another controversial figure. The chancellor says the cost to the public purse of the financial bail-out is 3.5% of GDP, or £49bn on current figures, less than had been expected.

The IMF on the other hand estimates the cost at more than 9% of GDP, or £127bn.

So how is he going to pay for this and other measures?

Our own figures for public sector net borrowing will be £175bn this year, or some 12.4% of GDP.

From 2010, as the economy starts to recover, and the measures announced in November and today take effect, borrowing will fall to £173bn, then £140bn, £118bn and £97bn.

So the borrowing in this financial year will be almost double last year's £90bn, with the recession reducing tax revenues and pushing up spending on social benefits along with the government's bail-out of banks and savers.

The increase wasn't a surprise, but economists have focused on the chancellor's estimates for how far and how fast public sector borrowing will come down over the next few years.

The figures are clearly based on the assumption of a solid economic recovery. and paying off the debt will mean squeezing spending and raising taxes.


This will require tough decisions, but I am determined that they will be fair decisions.

"Fair" in this case means, in the main, higher earners and motorists.

The chancellor is breaking a 2005 manifesto promise by bringing in a higher tax band for those with incomes over £150,000.

The Treasury hopes the new 50% rate will raise £2.4bn by 2011. But economists question whether the rate will raise anywhere near that much, as the really high earners will find ways round it.

The other big revenue raiser is increases in fuel duty, which will raise £3.6bn over the next three years.

Taken together, my Budget measures today represent a fiscal easing of about 0.5% of GDP this year - followed by a tightening of 0.8% of GDP per year until 2013-14.

In other words, this year, the Budget is a giveaway Budget in that Mr Darling is giving away £5.1bn in new measures helping businesses and individuals more than he takes in in extra taxes and duties.

In 2011, as taxes rise and support measures drop off, the chancellor will tax more than he gives away to the tune of a projected £5.2bn.


This will allow us to protect front line public services, while keeping current spending growth, in real terms, at an average of 0.7% a year from 2011-12 onwards.

When it comes to current spending - that is, spending on running government services - "efficiencies", or cutbacks in the government's back office functions, will help safeguard spending on front of house stuff, the chancellor says.

Public spending is still growing in actual numbers, but that 0.7% average growth rate is lower than the economy is predicted to grow and less than during Margaret Thatcher's government.

And as a percentage of GDP, current spending will actually fall from 43.1% of GDP this year to 40.8% by 2013.

I intend that capital investment will continue at historically high levels to 2012, as we prepare for the Olympic games in Britain.

According to Treasury figures published alongside the speech, net investment on capital projects - big things like new hospitals and schools and the Olympics - will be 1.6% of GDP in the year London hosts the Games.

It is expected to have fallen from 2.6% of GDP this year and will decrease further to 1.3% by 2013. That cut of 1.3% of GDP is equivalent to around £20bn per year.

In previous Budgets, however, the government has emphasised how important it is to maintain spending levels on new public projects.

This time, when it comes to reducing the government's record borrowing over the next few years, two thirds could come from cutting public spending and investment.

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