NEWS

Chancellor Alistair Darling on Wednesday gave a clear sign he would not mount a big new fiscal boost in next month’s Budget, as he surveys bleak public finances and evidence that the economy is being bolstered in other ways.

Gordon Brown and Barack Obama have called for the G20 summit in London next month to co-ordinate a global fiscal stimulus, but Mr Darling has joined other European finance ministers this week in calling for restraint.

However, on the fiscal side the chancellor put the stress on implementing tax cuts and spending increases that were already in the pipeline.

The Treasury argues that the UK economy is already being boosted: interest rates are down 4.5 percentage points since October; a programme of quantitative easing (the buying of gilts to lower borrowing costs) started to be implemented on Wednesday; and the 25 per cent dip in the exchange rate has improved the competitiveness of UK manufacturers. The British tax and benefit system is also unusually powerful in responding automatically to a downturn. The Treasury hopes that the combined effects of these factors will help ensure the economy is growing again by the end of the year.

There has been widespread speculation that Mr Darling would use his April 22 Budget to give the economy another big fiscal push, but the chancellor said most governments had already announced their plans.

He said a fiscal stimulus “has now been widely agreed, but now needs to be implemented”, echoing a similar call by EU finance ministers on Tuesday.

Some ministers believe Mr Darling is coming under pressure from Mr Brown to give the economy another fiscal jolt, a claim denied by both the Treasury and Downing Street.

Mr Darling stressed that no Budget decisions had been taken and that he would do “whatever I think is necessary to support our economy”; government officials believe he could still announce a modest package of tax cuts or new spending.

The £20bn fiscal measures announced by the chancellor in November included a widely-criticised £12.5bn VAT cut. Mr Darling argued that it had the merit of taking immediate effect.

Treasury officials say that some stimulus packages in other G20 countries are taking longer to have any impact, particularly those with an emphasis on capital spending. A rift is opening up between the US and the EU ahead of the London economic summit, after the administration of Mr Obama called for fiscal stimulus measures to the value of 2 per cent of national income for the next two years.

Mr Darling’s Budget will be constrained by dire borrowing, which economists now think will hit at least £150bn or 10 per cent of national income over the next two years, a post-war record.

International Monetary Fund estimates put the UK close to hitting the 2 per cent stimulus target in 2009, but way off in 2010. The fund says all other rich developed countries have bigger stimulus plans for 2010 than the UK.

From: Financial Times