Wednesday, March 12, 2008

BOM's Budget

BOM's "Staying Awake For Darling" kit

If ever there was a budget for cutting taxes, this is it. The economy is teetering on the edge of Beachy Head, with the three pillars of our recent prosperity- property, the City, and public spending- all gone phut. And out at sea, that Kerrrunch is getting worse all the time. You don't need to believe in demand management to see that tax increases now could well pitch us over the edge.

Which is presumably why this morning's leak is that the already announced increase in fuel duty will be postponed. Good.

But of course Darling's scope to cut tax is virtually zero. As we blogged yesterday, the spending splurge has maxxed the credit cards and he's banged right up against his own 40% "sustainable" debt limit- actually, taking account of the Crock debt, he's already over.

So what would we do?

BOM would cut tax and stuff the 40% limit. Not only would that shore up demand in the short-term, but it would also set us back on the road to supply side prosperity.

We'd say "unprecedented global upheaval... clear and present danger... blah blah... time for decisive action... who dares wins... reaffirm our faith in the enterprise and energy of the British people... immediate cut in Corporation Tax rate to 25%... small companies' rate cut to 20%... a further cut in basic income tax rate to 19p... [pauses for cheers]."

Of course, we'd also announce something else- the third fiscal rule: "after a decade of sustained investment in our great public services, and the achievement of blah, blah, blah, and Blah - oh yes - it is mete and right that we consolidate the fruits of that success by setting a framework for sustainable investment over the long-term... after the current settlement period (post 2010), public expenditure will be targeted to grow by no more than 1% pa over an economic cycle" [exits rapidly via a trapdoor].

Nobody but a Labour Chancellor would start from here. But there is a way of combining desperately needed tax cuts now with an assurance of continued fiscal prudence in the longer term.

I commend this statement to nation.

PS The excellent Robert Chote of the IFS says the economy is like Wile Coyote when he's run out over the cliff edge but hasn't yet realised. I couldn't find the absolutely right clip, but here's one that captures the economic outlook pretty well:

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