Economic Recovery by Christmas

Alistair Darling was accused of dangerous over-optimism tonight as he prepared to make a Budget prediction that the recovery will start by Christmas.

The Chancellor is expected to forecast economic growth of one per cent in 2010, following a crash of 3.5 per cent this year.

As well as wielding the axe on public spending, he plans a raft of new measures, including a £50billion boost to the housing market by underwriting mortgages, to ‘invest in the recovery’. 

But the Confederation of British Industry has a far less rosy view of the future. Today it predicts growth of a paltry 0.1 per cent next year.

It says that unemployment will peak at 3.25million next spring  -  leaving more than one in ten out of a job  -  while any end to the recession will be ‘slow and fragile’.

Economic forecaster Peter Spencer, of the Ernst & Young ITEM Club, said: ‘Although one or two positive signs have started to appear, we face another 12 to 18 months of serious grief.’

Shadow Chancellor George Osborne added that Labour’s spending plans were ‘already unrealistic’ and needed to come down.

And Lib Dem Treasury spokesman Vince Cable accused Mr Darling of ‘ unwillingness to face the unpalatable truth’.

In his speech on Wednesday, Mr Darling will announce cuts of £15billion through ‘efficiency savings’ over the next six years.

He is also poised to slow the growth in public spending significantly from 2011. 

There will, however, be substantial sweeteners. Apart from the huge injection into the housing market, they will include £2billion for back-to-work schemes and £500million for ‘green’ measures, such as wind farms and schemes to harness wave power.

Plans for a ‘scrappage’ scheme, where drivers of cars more than nine years old are £2,000 to switch to a new eco-friendly model, are still being thrashed out.

The alarming deterioration in the economy since the autumn leaves the Government increasing reliant on a swift economic rebound to plug the gaping hole in the public finances.

Borrowing could balloon to as much as £170billion this year  -  more than £2,800 for every man, woman and child in the country.

Today the respected financial analysts Grant Thornton warned that an ‘unprecedented explosion in public debt’ could leave a bill of £50,000 for every UK household by 2014.

In an unusual move, Mr Darling last night used the YouTube internet website to issue an upbeat video message ahead of the Budget.

Annual increases in public spending have already been slashed from 1.6 per cent to 1.2 per cent and Mr Darling is likely to reduce these further on Wednesday as he starts to balance the books.

George Osborne said it would be a ‘day of reckoning’ for Labour.

‘It is a truly dramatic moment when the economic carnage of the last ten years is laid bare,’ he said.

Mr Darling’s predictions will be treated with great scepticism as he forecast in the Pre-Budget Report in November that the economy would retract by between 0.75 per cent and 1.25 per cent in 2009, with growth of 2.5 per cent next year.

Vince Cable said: ‘I do not know how they expect us to believe them. A year ago, they had forecasts which were grotesquely unrealistic and wildly optimistic and it took a long time for the state of denial to lift.

‘We seem to be getting back to some denial now  -  an unwillingness to face the unpalatable truth, which is rising unemployment and no reason to believe that the crisis in the banking sector and wider economy is likely to be alleviated any time soon.’

Soaring benefits costs and the dire state of the public finances will leave Mr Darling little room to spend his way out of recession.

A raft of tax rises that will kick in during 2011 and 2012 are also on the cards.

Other measures likely to be announced on Wednesday include:

• ‘value for money’ audits on public-sector bodies, which could include curbs on town hall fat cats.
• a continued freeze on stamp duty on properties up to £175,000.
• ‘naming and shaming’ of high-level tax cheats.
• measures to help under-25s who have been unemployed for more than a year back into work or training.

Plans remain to raise the price of a pint of beer.

As revealed in Saturday’s Daily Mail, pensions could be targeted in a multi-billion pound raid as the Government grapples with a deepening black hole in the public finances.

The Chancellor could scrap higher-rate income tax relief on pension contributions.

The move could raise between £5billion and £7billion a year for the Treasury, according to City estimates.

It could provoke a backlash similar to that triggered in 1997 by Gordon Brown, who as Chancellor launched a £5billion a-year raid on pensions

Tags: allistair darling, goverment borrowing, UK Budget, uk chacellor, uk public spending

Category: News