The Budget 2009: What Can We Expect?

Posted on: 14 April 2009 by Gareth Hargreaves

Alistair Darling will use this month's Budget to warn families that years of austerity lie ahead after the economy performed worse than the Treasury had expected.


In one of the bleakest Budget statements in decades, the Chancellor will offer few signs of optimism. Last November, at his Pre-Budget Report, he had hoped that recovery could be under way by this summer.

On the 22nd April, Mr Darling will not speak of an early recovery but of rising unemployment, a soaring budget deficit and record national debt.  With drastically reduced Government revenues in the recession, the Chancellor may have to raise fresh taxes and cut back public spending.

The downturn in the first quarter of the year is believed to have been as deep as in the last three months of 2008, according to Treasury sources.

While Mr Darling believes that last week's G20 summit should do some good, he is concerned that the recent collapse of the Eastern European economies could lead to a second wave of bank failures, notably in Italy and Austria.

Public borrowing in the financial year just ended is thought to have soared to £95bn and private forecasters suggest a deficit of £150bn next year.

The Chancellor is planning to use his Budget to restore 'medium term fiscal sustainability' - which could mean several years of rising taxes and downward pressure on public spending.

Treasury officials say Britain is in a 'V' shaped recession in which the downturn is unusually steep and no one knows where the bottom is.

Every source of revenue has been decimated by the downturn, with economic output plunging 1.6% in the final months of last year, and much the same rate in the first quarter of 2009.

Earnings from the City, which created 25% of the nation's tax take during the good times, have been devastated by the banking crisis and the assault on bonuses.

The housing slump has virtually wiped out stamp duty revenues along with the tax income from commercial property transactions.

Income tax and VAT receipts also have been slaughtered while the Government is facing a huge rise in unemployment benefit and welfare bills.

The 25% devaluation of the pound against other currencies would normally have helped a recovery but the global economic slump has meant only limited advantage.

 Mr Darling believes that the measures already taken - including the VAT cut and the £75bn being printed by the Bank of England through 'quantitative easing' - should provide some impetus.

There is some Treasury optimism that when the upturn eventually comes, late in 2009 or early 2010, it will be robust.

The Prime Minister again warned bank chiefs last night to resume lending and 'clean up their act' to save the City when he met chief executives of major lenders in No.10.

  • Britons are more pessimistic about the economy than any other major nation, a poll of 20,325 people in 25 countries found. Only 4% reckoned the economy would improve soon while 67% said it would get worse. The Government was rated 3.4 out of 10 for its ability to manage the situation. Only Japan was lower at 2.9.
  • The Irish government yesterday unveiled its second emergency budget in six months, raising taxes and cutting spending.

What are you looking for from April's budget? Can Mr Darling turnaround the slump in the UK economy?

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