PBR - Labour is a busted flush

Alistair Darling stood up for about an hour and gave his standard, rhetorically dry performance outlining where he was going to spend his £20 billion-worth of unfunded tax cuts and also set out his widely optimistic growth forecasts. It was a dull hour in which the Chancellor attempted to give a little bit of help to everyone while hiding the true cost. But even the much trumpeted 'fiscal stimulus' seemed to underwhelm. Was that it?

Darling sat down and then George Osborne stood up and the fireworks began. He gave Darling and Gordon Brown both barrels in what was a tour de force performance, roared on by the Conservative benches who were as loud as the Labour benches were quiet. (Incidentally, the Labour benches only really game to life during the overtly socialist sections of Darling's speech - such as the increase in income tax on high earners - nothing gets Labour going like the politics of envy!)

Osborne went on the attack branding Brown's claim to have abolished 'boom and bust' the height of hubris. He then revealed a truly staggering statistic. Darling had kept quiet but the Chancellor was doubling the national debt to £1 trillion! Yes! £1,000,000,000,000!!! The Labour government plans to borrow more than at any other time in Britain's history. Britain's debt levels will even be greater than when the last Labour government had to go cap in hand to the IMF for a bailout in 1976. Another excellent line from Osborne was that Darling's £20 billion-worth of tax cuts will be paid for by £40 million-worth of tax rises. Message to Darling and Brown - you can keep your tax cuts!

Osborne also noted that the tax rises are scheduled to come into force in 2011. He said this was conveniently after the next general election. Osborne said: "This budget is all about the political cycle, not the economic cycle!" It is very clear that Brown’s goal is to secure a fourth term and if that means throwing the kitchen sink at the economy to achieve it then so be it – to hell with the cost!

What is even worse about the tax rises being planned is that more will have to follow. The Chancellor's growth forecasts are widely optimistic. And as the BBC's Robert Peston pointed out, the government's record on economic forecasts has been "lamentable" in recent years. What this means is that the government will have even greater shortfalls and an ever bigger black hole requiring yet more borrowing and further tax rises. This will place an ever greater burden on current and future generations as we all pay for Labour's folly.

As for the centre piece of the so-called "economic stimulus" - the cut in VAT - Osborne was rightly scathing. The tax cut is only temporary, retailers may just pocket the 2.5% cut, and how is such a small cut going to boost spending when shops are already offering discounts of 20, 30 and 40 percent? It may be costing a whopping £12 billion but is unlikely to have the desired effect. If you are thinking about buying a £500 LCD TV, will a saving of £12.50 really convince you to make the purchase rather than delaying? Of course not. Sure, it has the benefit of being effective immediately and is directly related to purchasing (and thus cannot be hoarded and saved by the electorate) but I just can't see it having a big financial effect. Supporters of the measure say never mind, it could help with confidence in the economy. But £12 billion is an awful lot of money to spend on the off chance that it will inject some confidence into the economy with no guarantees. Moreover, as Osborne himself pointed out, both France and Germany have looked at a VAT cut themselves but have rejected it.

At the end of Osborne's reply to Darling, he asked the Chancellor to admit that our debt will rocket to an enormous £1 trillion. Darling refused to confirm. I have never seen the normally unflappable Darling look so flustered as he did when he stood up to give his reply to Osborne. He was really struggling as the Tories shouted "answer!" at him. The Tory MPs were remonstrating with the Speaker that Darling was out of order for not answering the simple questions Osborne had put to him. Clearly rattled, Darling sat down after the briefest of replies.

This Pre-Budget Report has shown Labour to be a busted flush. Labour failed to fix the roof when the sun was shining so can only offer a stimulus of 1% of GDP and this has to be funded by even more borrowing which is the height of irresponsibility given our ever growing deficit. The experience of Japan in the 1990s has shown us that governments cannot borrow and spend their way out of a recession. This was something Brown once admitted but he is no longer letting economic reality get in his way. This failed Prime Minister is gambling our country's future just to get one more term in office.

As Robert Peston said, this was the "first genuine socialist budget" from Labour since they returned to power in 1997. It also signals the death knell of New Labour and should signal the death of the government and Gordon Brown’s political career.

Unfortuntely we will all pay for Labour and Gordon Brown's failure! We better get used to the idea of higher taxes. They will be with us soon enough!!!