Page last updated at 12:03 GMT, Sunday, 6 December 2009

Any manifesto clues, Mr Darling?

By Reeta Chakrabarti
Political correspondent, BBC News

The pre-Budget report has always been the poor cousin to the Budget.

Alistaor Darling
Alistair Darling was tight-lipped about the contents of his pre-Budget report

But this year - with a general election in the offing - it will be chewed over with particular relish.

It may not be the definitive package with which Labour will finally face the voters.

There is still the Budget and, of course, the general election manifesto to come. However, on the big issues of the moment - spending and cuts - it is a great opportunity to carve out those dividing lines with the Conservatives.

After months of being in the opinion poll doldrums, Labour is sensing if not a glimmer of hope, then at least a chink of weakness in the opposition.

Two opinion polls suggesting a dip in Conservative support do not amount to a trend.

Yet hopes of an economic recovery, coupled with a rockier ride for Conservative leader David Cameron recently (no referendum on Lisbon, questions about a high-profile candidate and his tax status, an apology over getting his facts wrong on two Muslim schools) have injected a bit more hopeful vim in the Labour veins.

Still, the chancellor has his work cut out for him. This is Alistair Darling's first pre-Budget Report since standing his ground against the prime minister and refusing to be reshuffled out to make way for Ed Balls.

Tory-bashing

As such, you would expect this to be a pre-Budget Report on which he stamps his own authority. But he doesn't have much room for manoeuvre.

Labour's approach to the big issue - how and when you start tackling the £175bn deficit, which could well be closer to £200bn if some reports are to be believed - has been to stimulate the economy now, and start cutting later.

We would expect the broadest shoulders to bear the greatest burden
Chancellor Alistair Darling

But two of the chancellor's arguably most voter-friendly measures - cutting VAT for a year, and the car scrappage scheme - are both due to expire at the end of the year.

Does he extend them? Can he afford to?

Leaks have suggested Mr Darling may be toying with the idea of freezing inheritance tax at the current ceiling of £325,000 instead of raising it by £25,000 as promised, which could have the dual advantage of freeing up a bit more money, as well as providing another chance to bash the Tories for offering tax breaks to the rich.

With the government's commitment to cut the deficit in half in four years soon to be enshrined in law, we will hear some detail of how it is planning to go about it.

Gordon Brown has only recently managed to admit that Labour will have to cut spending.

Having done so, there is bound to be a tension between how far you spell out the bad news, and how realistically you can soften the blow.

Painful measures

This is not a spending review, and so we won't get detailed spending plans for individual departments.

There have been suggestions that Mr Darling might indicate ring-fencing some big areas of public spending - health, education - but that then means more swingeing cuts elsewhere.

It is, after all, an argument Labour turned against the Tories - who would have exempted health, schools, defence, and international development budgets from cuts this year, allowing Labour to claim they would inflict cuts of 10% elsewhere.

Mr Darling was giving little away in an interview with Andrew Marr on Sunday morning, beyond warning there would be "much tighter" public spending as the government battled to halve the deficit in four years.

"I do think it's necessary for me on Wednesday to announce areas where we will cut spending or not spend as much as we were," he said.

He singled out the new NHS IT system as an example of one government programme that did not need to go ahead in the current economic climate.

'Windfall tax'

Cutting senior civil servant positions and moving jobs into the regions could also feature.

He also hinted that although the 50% top tax rate was "fixed," he may force the rich to pay more towards the cost of recovery.

"I think people will understand that as we come through a difficult period like this... that we would expect the broadest shoulders to bear the greatest burden," he told Andrew Marr.

There has been speculation about changes to capital gains tax and a "windfall tax" on bank bonuses. Mr Darling remained tight-lipped on the latter option but warned state-owned RBS he would "not be held to ransom" on bonuses.

Shadow chancellor George Osborne has pledged to cut the deficit faster than the government, but as yet there is not enough detail to know where the cuts would come.

He did not rule out a windfall tax on bonuses but said he preferred a tax on the banks' future profits.

'Fairness'

But he is likely to use Wednesday's Pre-Budget Report to pick holes in the government's figures than to come clean on his own.

The Lib Dems were first off the mark this week with their tax plans, a broadly redistributive package designed to lift four million people out of taxation altogether, paid for partly by a property tax on homes worth £2m and more.

Expect Treasury spokesman Vince Cable to bang the drum of "fairness," which they say characterises their proposals.

All general elections have the economy at their centre, but in a recession it's the overriding issue on which voters are likely to make up their minds.

The election may still be months away, but for ministers and their political opponents there is only one mantra: "It's the economy, stupid."



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