It was all meant to be about tax cuts, wasn't it? And yet it turned out that Alistair Darling's so-called tax cuts were little more than a political smokescreen designed to wrong-foot his Conservative opponents and obscure his real agenda – which is more spending, more borrowing and more tax.
Look at the tax announcements we actually got, as opposed to what the government has been spinning:
- A temporary fall in VAT to 15 percent.
- No increase in the corporation tax rate for small businesses.
- People who lost out when the government abolished the 10p tax rate are going to continue to get a rebate.
- Retrospective rises in vehicle excise duty are going to be phased in, rather then implemented in one go.
- Increased taxes on petrol, alcohol and tobacco.
- A new higher-rate tax of 45 percent for those earning more than £150,000.
- A 0.5 percent increase in national insurance contributions (an income tax rise in everything but name).
So basically, we get one temporary tax cut, along with a whole raft of tax rises. Great.
Of course, taxes aren't even the real story here. What we should really be worried about is the fact that government borrowing and public debt are going to skyrocket. We're looking at budget deficits in the region of 8-9 percent of GDP, as the government borrows north of £100bn a year. Taxpayers already shell out £30bn a year servicing government debt, but on these figures Fraser Nelson is predicting that "debt interest payments will eclipse not only defence [spending] like it does now, but schools and policing too".
All this so the government can test to destruction (again) the Keynesian fallacy that public spending increases economic growth. It's never worked before and it's not going to work now. Japan spent the nineties doing it, and all they got in return were debts amounting to 180 percent of GDP.
The government may truly believe that yesterday's pre-budget report is the first step on the road to economic recovery, but history will judge it far more harshly.