Sunday, 23 November 2008

If I ruled the world...

If I ruled the world, things would be different. Ok, let's not be completely unrealistic; if I ruled Britain, things would be different.

The papers are full of speculation regarding Alistair Darling's imminent pre-budget announcement, suggesting a broad range of direct and indirect tax cuts which will cost us in the region of £80 billion. The idea being that this economic injection will get us up an running again and in a few years when we're all better off Alistair can safely increase taxes without reprisal. There are a couple of problems with this approach, as you may have guessed.

Firstly, none of these proposals addresses the underlying issue of banks failing to make credit available to would-be borrowers, regardless of whether they are first-time buyers or small business owners. Peter Mandelson (as business secretary) claims he has had words with the banks and from next week we should be seeing a slight loosening of the banks' purse strings. We'll see.

The second issue is that these measures presume that giving people tax or VAT cuts will mean them spending the money that they have "saved" with these reduced taxes. In some countries, such as France, where short-term personal debt is at reasonable levels and most people pay off credit card balances by direct debit each month, this might seem perfectly logical. In the UK, where people are saddled with unbelievable sums of credit card debt, it would seem the more prudent option to clear these debts and not rush out on a manic, high-street spending spree. With credit-card debt at an estimated £60 billion (accounting for two thirds of total European credit-card debt), a massive handout from Darling and Brown might make a dent in associated repayments, without ever becoming the economic stimulus they are praying for.

I am all for cutting VAT and increasing personal tax credits for lower-pay workers, with or without impending recession. However, while fiddling about with these rates might provide a short, sharp jolt to the system, Brown and Darling should be using this opportunity to think big: VERY BIG. Now is the time to look at long-term infrastructure projects (think high-speed train lines from London to Glasgow), hoovering up unoccupied buy-to-let properties to meet affordable house building targets (think an end to endless housing waiting lists), providing massive incentives for sustainable enterprise and energy development (think Britain as a world leader in green economics) and finally putting this country on a path of social, environmental and fiscal responsibility.

Remember Alistair, a nation is not just for Christmas...I'll let you finish that one yourself.

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