Budget storms

The budget will only move a few billions around – not enough to have a major impact on the state of our economy. Long gone are the days when budget secrecy rules the roost, and when Chancellors had to resign if they leaked any of the budget measures. All the main news outlets this morning had a strong story that the budget would drop an immediate further increase in petrol duty. So I expect to hear that soon, but I don ‘t expect the Chancellor to resign! We will probably have to pay some more green taxes and some booze taxes, and there may be some benefit increases to tackle child poverty, to offset part of the abolition of the 10p Income Tax band.

Meanwhile, the Credit Crunch is the spectre at the feast. Yesterday the Feb made another $200 billion available to banks, on the top of the chunky $200 billion they offered last Friday. The Bank of England managed £10 billion, as part of a coordinated package which included action from the Bank of Canada, the ECB and the Swiss Central Bank as well. The main Western Central Banks are engaged in a gargantuan struggle to keep the wheels of the credit markets turning. They are now trying to rescue good quality loans, not just sub primes.

The actions day by day in the money markets will determine how uncomfortable our future will be. The sums involved will dwarf anything in our domestic budget announcements. The Budget will concentrate on shuffling taxes around, because unfortunately there is no scope to offer tax cuts. Tax cuts are badly needed, and are being offered in the USA as part of the total policy to rescue the US economy from sharp slowdown. The UK government has been too profligate during the good times, and now has nothing left in the tank to help at a time of credit squeeze.

The Us will probably reinforce its bold action in the money markets with further interest rate cuts. The Bank of England has fewer shots in its locker. We will probably be told today that the UK economy is better placed than most to handle the world turbulence.With high inflation, slowing growth and an overextended public sector is difficult to endorse that conclusion. For all our sakes I hope the US action is sufficient and it works. Clearly the UK has nothing like the flexibility and firepower of the US authorities, and has foolishly used up so much on the nationalisation of just one distressed bank. Today, as we hear Mr Darling shuffling the odd billion or two of tax, we should keep in our minds the £110 billion of liabilities he has taken on.