Page last updated at 19:09 GMT, Monday, 24 November 2008

A budget to create political gulf

By Iain Watson
Political correspondent, BBC News

Alistair Darling
The government's plan has put the Tories in a difficult position

Never mind talk of economic black holes - this was a pre-Budget report aimed at creating a political gulf.

The chancellor will hope his package of measures to help diminish the downturn will work, but it is quite clear diminishing the standing of the opposition was - if not at the very forefront of his mind - certainly stamped on his consciousness.

The official line from the government is that any talk of an early election is an unwelcome distraction from the challenges they face right now.

Yet this pre-Budget report had all the hallmarks of an old-style pre-election give away.

More money for pensioners, a perennially popular part of the electorate. Even more for the poorest pensioners.

Prices cut for more than a year as VAT is reduced from 17.5 to 15 per cent in a pre-Christmas giveaway.

The potential impact of planned changes to vehicle excise duty - which upset some Labour backbenchers, not just motorists - has been given the political equivalent of an airbag and the impact softened considerably.

And there is a permanent pay-out for most of those who lost cash from the abolition of the 10p tax rate.

Prudence suspended

Of course all this munificence has to be paid for and the chancellor had to come clean to save the value of the pound, as much as preserving his own reputation for straight dealing.

He told us that Prudence, if not dead, had been put into suspended animation. He predicted dear Prudence's resurrection in 2015/16 but as the Treasury's recent predictions have been widely optimistic, there is no guarantee of revival.

What we do know is that the top rate of tax for those earning more than 150,000 will rise to 45% and everyone earning more than 20,000 a year is likely to pay more because of a rise in National Insurance contributions - but not until 2010/11.

Now, I'm not sure what significance that has in the economic cycle - I'll leave that to the real experts - but in the political cycle, this means the "giveaways" take place very soon - and nearly all the "takeaways" are scheduled to take place after the time of the last possible date of the next general election.

George Osborne
The Tories have have painted themselves as the party of fiscal conservatism

This puts the Conservatives in a difficult position. They know the pre-Budget report is political and they know if they are elected they will have to decide whether to go ahead with Labour's planned tax rises.

It would be difficult not to do so without looking imprudent - and they have painted themselves as the party of fiscal conservatism.

Labour are also trying to suggest that the opposition do not care enough about the plight of people now.

Perhaps feeling a little fiscally stimulated himself, Alastair Darling threw aside his usual low-key approach to accuse his opposite number of not mentioning "families and pensioners" in his response to the pre-Budget report.

Nothing would please Labour more than to portray David Cameron's modernised Conservative party as "the same old Tories" who don't listen to "hard working families" and who want to cut spending.

Future predictions

The main weapons of counter attack in the Conservative armoury are reminders of the past, and predictions of the future.

George Osborne today tried to pin the blame for the downturn not so much on the global economy but on decisions taken closer to home by the Labour government.

He also reminded Alastair Darling that the Labour PM in the late seventies, Jim Callaghan, said that the country could not spend its way out of recession so he wanted to suggest that the pre-Budget report was not a return to old Labour, but to Jurassic Labour.

As for the future, he warned of a Labour tax bombshell if they are re-elected.

A similar strategy paid dividends in the hard fought 1992 election but will history repeat?

At that time Labour were in opposition... this time they are in a position to hand out pre-election goodies.

PRE-BUDGET REPORT

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In truth a lot will depend on the economy - if unemployment rises relentlessly before the next election then voters may not feel too grateful for short term help and change will not seem like a risk but an opportunity.

But if the pre-Budget report is in part designed to widen the political gulf with the opposition it is also aimed at healing divisions within Labour's ranks.

Some Gordon Brown-sceptics such as Frank Dobson, the former health secretary, have spoken in support of the government's approach.

The equally weighty former home secretary Charles Clarke - the very epitome of a Brown sceptic, to put it mildly - issued approving noises over the weekend.

Taxing the rich, putting money in pensioners' pockets, and building more homes for rent are policies which backbenchers and the party's union paymasters will happily commend.

Political sage

Given the noisy political rhetoric between government and opposition, the Lib Dems are likely to struggle to be heard.

Yet their Treasury spokesman Vince Cable - once ridiculed as a doom monger because he pointed out credit levels in the UK were unsustainable - is now seen as something of a sage.

He was instrumental in getting his party to drop their proposals for a higher top rate of tax and Labour has now stolen the Lib Dems' discarded garments.

But he also points out that cutting income tax for the least well - off might have been more effective than the more melodramatic VAT cut.

But fundamentally, when the chancellor sat down this afternoon, we could see not just an economic recovery plan taking shape but a general election manifesto beginning to form before our eyes.

That does not mean there really will be an early election - that will depend on the state of the economy as well as the polls.

But the political terrain on which it will be fought could not be clearer: a government willing to borrow more, spend more, then tax more and an opposition that preaches responsibility, spending restraint, and tax cuts in the longer term.

In the next year or so we will know if voters prefer jam tomorrow or spending like there is no tomorrow.



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