Monday, 20 April 2009

Budget preview - this much we know.

Inside the Treasury over the weekend Alistair Darling was said to be "in a good place". He's confident he can muster his arguments on Wednesday for increased public borrowing and continued public spending while the recession bites and that he can also sprinkle a some optimism over what will be a fairly grim set of national accounts.

In the maelstrom surrounding the next door neighbour’s e-mail accounts 11 Downing Street has been spared from much scrutiny in the run up to what will be a crucial budget.

The chancellor will have to be frank about revised borrowing figures for the next few years, having bailed out the nation’s banks and cut VAT in November how could he not be? But he will also state his belief that the recession could show signs of ending and that from the New Year things will improve. The economy, the Treasury now estimates, will shrink by 3.5% this year but grow 1% in the next.

There will be a little more hope than that 1% figure in the most important day in the parliamentary year. Well-placed advance pieces in the newspapers have laid the mood music for what to expect on Wednesday. There will be, as I report in the Herald today, a multi-billion sustainable energy package negotiated with the European Investment Bank to re-finance the onshore windfarming industry, most of which will be based in Scotland.

There will be a £2bn package for unemployed school leavers and graduates ensuring that apprentices can finish their training and that Britain will not be left with a lost generation coming out of recession.

There is expected to be a £50bn package of government mortgage guarantees to kickstart the housing market, more freedom for companies to carry back losses and defer tax payments and a massive increase in investment in broadband to give the UK economy an advantage when the graphs start going upwards at the turn of the year.

There will be breaks for the North Sea oil industry, with incentives for the development of hard to exploit fields that would otherwise be left under the continental shelf. As well as being a budget for recovery the chancellor will flash more green credentials with an extra half a billion pounds for green projects that could be as simple as insulation schemes but will create thousands of jobs at a time when unemployment is rising.

That’s the good news, as much as we know, out of the way. In all other respects this is going to be a budget of staggering figures. The financial world has been turned completely upside down since the Chancellor stood at the dispatch box last year and the economic situation means Mr Darling has no money to pull financial rabbits out of the hat on Wednesday.

The opposition is preparing the ground for a "day of reckoning" with Shadow chancellor George Osborne forecasting darkly "the longest recession that Britain has had since the Second World War." He said yesterday: "It is a truly dramatic moment when the economic carnage of the last 10 years is laid bare."

In contrast Mr Darling exuded hope and confidence in novel YouTube broadcast last night. In his video message Mr Darling said: "I want to make sure that we do two things. One is to help people now, through this difficult time. But equally importantly, we’ve got to prepare for the future, to ensure that we can take advantage of the upturn, of the recovery when it comes, and it will come."

The big faultline between the Conservatives and Labour is over borrowing and public spending. Mr Osborne would rein in spending, Mr Darling has to explain how he will pay for it. That will be the real trick on Wednesday, not just appearing confident, but laying out the repayment terms for the nation.

Vince Cable, who hosts his own alternative budget briefing today, has called for some truth about where the pain will be inflicted. Mr Darling will want to deliver both honesty and credibility, but the electorate may not thank him for it.

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