The Report, and the accompanying package of measures, has been greeted in the Financial Times as, “Say goodbye to New Labour.” Philip Stevens goes on, “After a decade when it dared not offend the wealthy, Gordon Brown’s government intends that the most affluent bear the brunt of post-election tax increases. It is not quite socialism but neither is it New Labour.” (25.11.08)

Widely seen as a U-turn, the policies put forward are panic measures. The Report marks not a change of course but the shipwreck of the whole New Labour ‘project’. For the basic assumption of Blair and Brown was that capitalism could deliver the goods and that they could run the system. As we see, that was a gigantic lie.

It is true that the introduction of the 45% top rate of income tax for those on over £150,000 a year takes a knife to the throat of a New Labour sacred cow, and high time too. The measure has been described as ‘back to the 1970s’ and ‘the politics of envy.’ Actually the top rate of tax in 1979 was 83%, and the rich were still much richer than the rest of us then. The only effect of tax cuts for the rich since then has been to skew the distribution of income still further in their favour. The higher rate (as the FT points out) “contributes a mere £670m, confirming its status as a redistributive smokescreen rather than a significant source of revenue.” Darling is in effect saying, ‘We’re all in this together and we’ve all got to make sacrifices – even the rich who got us in this pickle in the first place.’ But the tax change doesn’t kick in till 2011, and the increase in National Insurance scheduled to be implemented at the same time will really hurt ordinary working people.

The FT continues its assessment, “The government talked yesterday of extraordinary measures for extraordinary times. Sadly, the most extraordinary aspect was the scale of the borrowing.” Government debt has ballooned out of control. Darling has had to officially abandon Gordon Brown’s ‘golden rule’ and his commitment to ‘prudence’, which the recession has revealed lie in tatters. The situation can only get worse as, when the recession bites deeper, tax revenues fall and benefit claims mount up.

 We are looking at £120bn government borrowing next year. The Tories are quite right to denounce this as a “tax bombshell” and point out that it all has to be paid back some time. But their ‘alternative’ seems to be to let as many people rot on the dole for as long as it takes. That alternative cannot be acceptable to the working class.

The purpose of the Pre-Budget package is to stimulate the economy. After more than a year of dithering and denial, Darling has had to accept that the economy is going into recession and there is nothing the government can do about it. Everybody knows that ‘no return to boom and bust’ was at best a vain boast and at worst a stupid lie. All they can do, they now believe, is to moderate the downturn and turn the economy around as quickly as possible.

Treasury predictions have been consistently behind the curve and drunkenly optimistic. Even so the Report now predicts a 1% decline in output next year with a bounce back in 2010 – just in time for an election - a forecast the FT finds “extraordinarily optimistic”. The FT acidly comments, “Few other forecasters expect such a brief recession and such a robust recovery.” The OECD more realistically predicts a “severe downturn” with unemployment at 8% by the end of 2009. They believe Britain will be worst hit than any other G7 country. David Blanchflower, the only one of the Monetary Policy Committee’s ludicrously misnamed ‘Wise Men’ to see the recession coming, also foresees 3 million unemployed by the end of next year. It seems we are in for years of straitened circumstances.

We have seen the Bank of England cut interest rates, with more to come, and that hasn’t stopped the slide. The only thing left for a capitalist government to try to get us out of the doldrums is a fiscal stimulus – cutting taxes and increasing government spending. This package is said to be worth £20bn (By way of comparison £15bn is about 1% of Britain’s GDP).

The centrepiece is a cut in Value Added Tax from 17½% to 15%. All the newspapers have given examples of its effect. You could expect to save about £8.50 on a £400 HDTV for instance. Is that likely to make the difference between buying and not buying? Most analysts think not. The economic context has to be taken into account as well. Everyone knows hard times are here. People’s inclination is to hang on to their money. You can take a horse to the water but you can’t necessarily make it drink.

That’s if the VAT cut is passed on to the consumer. Many retailers are also struggling with the recession and will feel inclined to keep the difference to bump up their profits and not cut prices. Physically changing thousands of prices is itself costly, especially for small firms. New Labour is always going on about small enterprises to show how business-friendly they are, but the VAT change is a genuine burden. Prices are supposed to be adjusted by Monday December 1st. VAT will go back up in a year’s time in any case.

The government is also bringing forward spending proposals on repairing schools and, of course, we’re going to need more Job Centres! Benefit payments and pension increases have been brought forward. But they have hardly been increased in real terms. These are desperately poor people who really would spend any extra cash they get their hands on and boost the economy in the process.

Even if the government measures alleviate the course of the recession – and it’s by no means certain – the need to pay the cash injection back means that hardship will stretch out into the future. In effect they are trying to even out the pain over years, not eliminate it.

Taxes will go up in 2011 to pay for the cuts now. And they are talking about ‘efficiency savings’ in government spending. That expression always has a nasty ring to it, and of course it’s a euphemism for cuts and privatisation. New Labour haven’t really changed their spots. They are as toxic as ever in their attitude to the public sector. The Royal Mint, Ordnance Survey and Meteorological Office are in the firing line to be sold off. To use former Tory Prime Minister Harold Macmillan’s phrase this really is “selling off the family silver,” and they are running out of heirlooms to pawn. Presumably we will still need to print money, read maps and know what the weather is doing. So the only way private buyers can save money is by slashing these workers’ wages and conditions.

Writing in the Financial Times (26.11.08) Simon Ward warns the measures could trigger a debt trap by piling up government debt, and with it interest payments. “Regardless of whether the effect of Darling’s package is large or small, it will be fully reversed in 2010-11 and beyond  as the VAT cut is reversed and higher national insurance and income taxes kick in.” He predicts that the net fall in government spending could rein in the GDP growth that the Treasury is –optimistically – predicting for the future. “So it is possible that by 2011 the economy will be no stronger than in the absence of Mr Darling’s measures yet the public finances will be worse.” Repayment of interest on government debt could clog up growth producing a vicious circle. He concludes, “The danger is of a debt trap – a vicious circle in which the debt/GDP ratio explodes as rising debt interest causes ever widening budget deficits.”