Effects of credit crunch may force Labour to hold off on election

Mar 13 2008 by Tomos Livingstone, Western Mail

THE impact of global financial turmoil will last longer than expected, Chancellor Alistair Darling admitted yesterday – casting doubt on Labour’s ability to call a general election next year.

With the public finances only expected to return to the black in 2010, the Government may be forced to hold on until May that year before calling a poll – the latest legal date.

Setting out his first Budget yesterday, Mr Darling said the economy would grow between 1.75% and 2.25% in 2008 – in line with his prediction last October.

The Chancellor now expects the economy to grow by between 2.25% and 2.75% in 2009 – compared with the 2.5% to 3% anticipated six months ago – as the effects of the credit crunch that began in the US last year linger on.

In a sign of their likely line of attack whenever the election is called, the Tories said the Budget took no account of the fact that “the cost of living is going up, and Labour are making it worse”.

Although income tax rates were left untouched, with a planned 2p cut in the basic rate and the scrapping of the 10p rate coming into force next month, there were significant rises in indirect taxes.

A new one-year “showroom tax” on the most polluting cars will raise an extra £735m by 2010-11, with higher alcohol duties bringing in £625m in the same year.

Mr Darling put 4p on a pint of beer, 14p on a bottle of wine and 55p on a bottle of spirits from Sunday night, an attempt to reverse the rising tide of binge drinking in Britain.

By 2010-11 the Government will be raising an extra £1.865bn in indirect taxes – some of which will also come from a crackdown on North Sea oil companies.

Some have been moving their expenses payments offshore to reduce their tax bills; a Treasury source said the planned £500bn crackdown was related to “one or two companies”. Neither the Treasury nor HM Revenue and Customs would name the firm last night.

The extra revenue will be spent on a series of measures to tackle child and pensioner poverty.

Mr Darling promised extra help for “hard-working families”, including an increase in child benefit for the first child to £20 a week from April 2009 – a year earlier than planned.

He also promised to increase by £50 a year above inflation the child element of the child tax credit for families on low and middle incomes from April next year.

And there will be a one-off increase in the winter fuel allowance – from £200 to £250 for the over-60s and from £300 to £400 for the over-80s.

More than 480,000 pensioner households in Wales will benefit.

Other measures include a widely-expected postponement of the 2p rise in petrol duty from April until October, and an extra £5m over three years for the Assembly Government.

Mr Darling also warned he would legislate next year to impose a charge on plastic bags unless the retailers took action to curb their use.

It emerged later that the Assembly Government could introduce its own ban first, with plans to devolve powers over “waste management” already under way.

“Rhodri Morgan and I have discussed this,” Welsh Secretary Paul Murphy said last night. “My own view is that the Welsh Assembly would be very interested.”

Welsh Environment Minister Jane Davidson has already said she wants to see free plastic bags banned.

Mr Darling told MPs, “In every country in 2008, every government has one aim – to maintain stability through the world economic slowdown.

“This is a responsible Budget to secure Britain’s stability in the face of global uncertainty.”

But Tory leader David Cameron said, “The Chancellor and the Prime Minister live in an entirely different world from everybody else.

“For people, every time they refinance their mortgage it’s costing them more.  Every time they fill their car up they’re paying more. Every time they shop, food bills are higher.

“And yet every time they get a tax bill, they’re paying more. There was no recognition of that in this Budget.”

Labour backbenchers were swift to back the Budget, with Wrexham MP Ian Lucas saying, “This Budget shows Alistair Darling is a solid character who can be trusted with the economy.

“While the Conservatives’ gimmicky proposals have been designed to catch the headlines, their record in office is of boom and bust.”

Clwyd South MP Martyn Jones said, “It is to the Chancellor’s credit that he sought to provide protection to those most vulnerable in our society.”

The other “sin tax” – tobacco duty – went up with an extra 11p on a packet of 20 cigarettes and 4p on five cigars, with effect from 6pm yesterday.

Page 2 - It was redistribution, but from the master of the understated statement
Page 2 - Drinkers hit by alcohol tax rises
Page 2- More money for child poverty pledge
Page 2 - Green tax hikes used as a way to raise revenue