Chancellor Alistair Darling will today set out his view of Britain’s prospects for economic recovery as he delivers one of the most anxiously awaited budgets of recent years.

He is expected to reveal soaring public borrowing and confirm that Britain is in the most savage recession since the Second World War.

Meanwhile, tax increases and spending cuts from 2011 are likely, as Mr Darling announces plans to restore public finances.

Mr Darling admitted weeks ago that he had underestimated the impact of the recession. In November he said the economy was expected to contract between 0.75% and 1.25%. But economists now forecast a 3% drop in GDP, while the International Monetary Fund has predicted a fall of 3.8% in the U.K. economy this year, which would make this the worst recession since 1945.

He is also likely to revise his forecast for public sector borrowing as tax revenues fall. His previous prediction of £116 billion for public borrowing in 2009-10 is expected to increase to between £150 and £175 billion, pushing the budget deficit to as much as 12% of GDP.

During the previous recession in the early 1990s debt peaked at 8% of GDP, but that downturn was modest compared to the current one.

Darling is expected to announce a series of modest measures to get the budget back on track, including possible future tax increases and spending cuts that would come into force after the next general election. He will also outline plans for ‘targeted’ action to help the unemployed as the dole queues keep getting longer.

Unemployment figures a month ago showed a record 138,000 increase in the number of people out of work and claiming benefit, and Labour MPs are expecting another big jump today.

Mr Darling will today pledge new jobs for up to 250,000 of Britain’s young unemployed, as joblessness hits its highest level since Labour came into power in 1997.

The VAT rate, which was temporarily lowered to 15% last year, is due to increase to its original level of 17.5% at the end of the year, and some have predicted a further increase to 18.5%.

Mr Darling will also promise an additional squeeze on public spending, with cuts of around £15 billion through “efficiency savings”, though it is uncertain whether a planned trimming of Whitehall budgets can be fully realised. A report from a panel of independent advisers to the Treasury warned that proposed efficiency savings would yield “no easy wins” for the government. They said that the full benefits of “sustained action” would not be seen until 2009.

Many of the measures that Mr Darling will announce to boost the economy have already been floated.
A car “scrappage” scheme is likely to be announced, which could see people receive up to £2,000 towards a new car when they trade in their old one. The scheme has already been piloted in Germany with considerable success.

Mr Darling could also claw back tax relief on the pensions of high earners, although this is likely to affect only those with incomes of £100,000 a year or more.

He will also announce a series of “green” initiatives, including subsidies for the development of wind farms. He is expected to unveil world’s first legally-binding budgets for greenhouse gases in an effort to get the UK to cut emissions by between 34% and 42% by 2022.

A £1 billion package aimed at boosting Britain’s flagging housing market is expected to a three-month extension on the stamp duty “holiday” on homes costing below £175,000 until the end of the year.

Alistair Darling will today promise to create work for up to 250,000 of Britain’s young unemployed in a “budget for jobs” that will coincide with a fresh surge in joblessness to its highest level since Labour came to power in 1997.

Mr Darling is likely to estimate that bank bailouts will eventually cost the taxpayer £60 billion, admitting for the first time that the Government may not recover the full costs. Last the Treasury said that an even higher estimate of $200 billion by the International Monetary Fund was issued in error and had been withdrawn.

Shadow chancellor George Osborne said that estimates of the cost of the bank bailout showed the “potentially massive cost of Gordon Brown’s utter failure to regulate the banking system”. The Tories have called the Budget a “day of reckoning” that will “lay bare” Labour’s economic failings.

Speaking on BBC Radio 4’s Today programme, Liberal Democrat Treasury spokesman Vince Cable expressed concern about how long it would take for the economy to get back into shape, in light of falling tax revenues. He said that people needed “a very clear statement - without spin - about exactly what the situation is in the economy”.

In spite of gloomy predictions for Britain’s economy, a recent poll detected some improvement in the public mood.

In an Ipsos MORI survey of 1,011 adults conducted April 17-19, some 30% of those surveyed said they thought their personal finances would get worse in the next few months, compared to 52% who felt that way in November.

This entry was posted on Wednesday, April 22nd, 2009 at 9:03 am and is filed under Banking, Budgeting, Housing Market, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.