2009 Budget Special: Labour’s forecast looks sunny

Yesterday saw the release of Alistair Darling’s 2009 budget, a budget that is critical for the future of not just the Labour Party in government but simultaneously the UK economy and the lives of the people therein. Needless to say, many things rest on the tatty shoulders of that small red box!

This budget expectedly upheld several trends from previous budgets; for example, both alcohol and tobacco duty will see a 2% increase from mid-April. In recent years, the government seems to have capitalised upon tobacco especially as a price-inelastic product for which demand does not respond to price increases. And similarly, fuel will experience a two pence rise in duty on the litre followed by a one pence rise above inflation annually for the next few years.

{{ quote The effects of such a policy on the economy are difficult to gauge but clearly the effect of the lives and the communities of those involved will be invaluable }}

In terms of taxation though, this budget, controversially, sees a new, higher, 50% tax rate on incomes over £150,000, breaking a promise kept by New Labour since 1997 not to raise taxes. However, as Brown argues, the £1.13 billion this will raise in the next tax year is crucial to maintaining Labour’s much longer term commitments to social justice and equality. In addition, with the fall in the supply of credit, redistributive fiscal policy seems crucial now more than ever in order to create demand for goods and services in the economy.

In addition to this, the budget further concentrates on protecting low-income households in the short term with a slight increase in child benefits, redundancy pay and pensions. But also, in the long term, Labour has pledged to create enough jobs to enable them to promise employment to every 18-24 year old who has been unemployed for more than 12 months and planned to create 54,500 new places in education and training for 16-17 year olds. The effects of such a policy on the economy are difficult to gauge but clearly the effect of the lives and the communities of those involved will be invaluable.

With all this taken into account, growth forecasts for 2009 look bleak with a predicted 3.5% contraction in the British economy but according to forecasts this is set to become a 3.5% growth in 2011. But Labour looks to have learned from -the mistakes of last year; the 2009 budget proposes a re-evaluation of financial regulation and the granting of greater powers to regulatory bodies.

In the financial sector, in the short term, the budget proposes to stabilise the banks immediately, and thus indirectly the supply of money and its value. The government aims to aid banks in the deleveraging process by ensuring their liquidity, guaranteeing funding from wholesale and preventing impaired assets from becoming burdensome, all with the aim of returning banks to normal operation as soon as possible.

Ultimately, the Labour budget is ethically focused on protecting the victims of the crisis and set on restoring the economy to normal operation as quickly as possible. Many have bemoaned the expected rises in tax but even the shadow chancellor, George Osborne, after denouncing the budget as a ‘fantasy’, conceded in an interview with the BBC that the conservatives would not guarantee a tax cut were they to come to power at the next election. However, with no cut in public spending to be seen, the main question this budget leaves is as to who will redress the growing government deficit.