The Pre-Budget Report, A Reaction and Interpretation.

By Lindsay Muir.

Yesterday the Chancellor of the Exchequer, Alistair Darling, unveiled the most anticipated pre-budget report in twenty years. The report is the basis for some radical changes and tax-cuts designed to buffer the force of the recession which looks certain to hit in 2010, perhaps even before the end of the year; and stimulate both the financial markets, which were up 9.84% at close yesterday, and consumer spending.

The Chancellor’s report is a major cataclysm in the economic policy of the Labour Party. The move to increase the income tax rate on earnings over £150,000 to 45%, should Labour win the next general election, marks the end of New Labour’s pledge not to increase income tax and is perhaps a hint of the return of the Labour Party of old.

As predicted VAT, value added tax that we pay on so called “luxury goods” is to be slashed by 2.5% to the new level of 15%. This is the lowest rate allowed under EU law. Through this the government hopes to stimulate consumer spending, which has understandably dropped in recent months with many facing growing utility bills and general financial uncertainty. In basic economic terms it is hard to overestimate the importance of consumer spending, without it the entire financial system on which the modern world is based would collapse on a scale one hundred times worse than has already happened.

The title of yesterdays report, “Facing global challenges: supporting people through difficult times”, should not be taken at face value but as the ethic which will see the world overcome recession. It is in the global interest that the nation states of the world begin to trust each other and their financial institutions in order to kick start the global economy in a reformed and better regulated manner in order to avoid the same economic problems 30 years from now.

Full details of yesterdays pre-budget report can be found here. Courtesy of HM Treasury.