|
Budget 2009: More public investment, not less, is needed to see Britain through the downturn. Labour’s budget must be bold
www.progressonline.org.uk/Magazine/article.asp?a=4025
06 April 2009
The G20 ‘save the world’ summit took some truly historic decisions. The budget is Labour’s first major opportunity to follow through on that deal.
Practical measures were agreed aimed at reversing the downturn in the global economy by boosting world trade. Principles for reform of the global financial system were adopted promising an end to light touch regulation. The budget must show how the government intends to implement its part of the bargain, notably on tackling tax havens and tightening the regulation of financial institutions.
The extra funds for the IMF and the help for emerging markets and developing countries exceeded expectations. However, G20 did not put an end to the global financial crisis. The threat of a general slump remains real, even if G20 lessened the likelihood. The prospect is still of a prolonged recession. Which is why the $1.1 trillion programme of extra support for the world economy is so significant.
David Cameron’s response to the G20 agreement was to call for the focus to switch back to the UK domestic economy and for priority to go to cutting the UK national debt. So much for his call for a ‘capitalism with a conscience’. The Tories seem unable to accept that financial markets are not self correcting, that the risk of catastrophic economic collapse is inherent in an inadequately regulated system, and that only government intervention can promote recovery when the financial system has failed.
The euphoric reception that greeted the G20 summit must be balanced against the reality that the UK economy today is not where the Treasury expected it to be in November. It looks likely to shrink this year more than twice as fast as the Treasury predicted.
Alistair Darling’s pre-budget report was rightly welcomed as both bold and imaginative. He needs to send a similarly strong economic and political message in the budget. In framing his budget judgement I hope Alistair will recall his prescient warning last August that the downturn could be the worst for 60 years.
That warning hit the media like a stun grenade. Initially they did not know how to react, or what to make of his suggestion that the recession could be deeper and longer lasting than people expected. Once their confusion cleared they realised that one UK economist had already issued a similar siren call.
Sadly, David Blanchflower’s forecast that UK unemployment could reach 2 million by Christmas 2008 came true. Today he is warning that the jobless total could rise towards 4 million in 2010 and that this recession could prove more protracted than any in recent decades. So don’t go looking for any green shoots among the Darling buds of May. The budget priority must be to maintain the momentum to recovery.
Although this is no time to be reckless, more not less public investment is needed to create jobs, and taxes on lower incomes must not rise, indeed should be lowered if possible. This is such an extraordinary crisis that the usual borrowing rules which fixate the Tories and their media allies must be set aside. Otherwise the economy and with it Labour’s electoral prospects will stall. A time in short for boldness.
Peter Hain
|
