PB Week: Darling’s debt mountain

We have the perfect storm: fast falling income tax – down £16bn, rising unemployment heading towards 3m, unprecedented levels of debt and a government that has no more money for new initiatives to help get us out of this mess. The next election will be won and lost on the economy, and Chancellor Alistair Darling is pinning all his hopes on a recovery "towards the end of this year" or at least one starting in the first quarter of 2010. After predicting a contraction in the economy of 3.5% for 2009, he optimistically believes growth will return to 1.25% next year. However, the levels of borrowing, £175bn this year or 12% of GDP for 2009-10, are at unprecedented levels, and Darling needs his figures to be accurate after not forecasting the depth of the recession in his pre-Budget report in November.

One area welcomed by the insurance industry yesterday was the Chancellor's decision to provide top-up credit insurance, where insurers have withdrawn cover. Businesses that have had insurance reduced since 1 April will be able to purchase six months insurance from the government from May until the end of the year. Those that have had their protection completely withdrawn will not be covered by the government, thus managing to gain the approval of insurers for the scheme.

Susan Ross, director at Aon Trade Credit, commented: "With demand falling and credit insurers receiving heightened levels of insolvency claims, we are delighted that the government has realised there is a need for support for trade. But we hope that the scheme will be extended to support exports to allow for a time delay to the impact of credit limit reductions and withdrawals and, secondly, for the government to consider extending it beyond the end of this year in case our economy does not recover as quickly as predicted." Shaun Purrington, regional director of Atradius UK and Ireland, said:"We are delighted that government has taken further measures to help UK plc through the offer of an additional trade credit insurance scheme. Atradius fully supports the scheme, which will be on offer to all Atradius customers who meet the scheme's criteria."

Another area which may help some businesses to some extent is the extension of the ability to reclaim taxes on profits over the last three years for any losses up until November 2010. In addition there is tax relief for investment in machinery and plants to 40%.

Aside from this, there was little more to add to the initiatives in the pre-Budget report apart from the headline grabbing 50% tax hike for the money earned over the £150,000 threshold, and the reduction in personal tax allowances for those earning over £100,000. This will raise billions from the top 2% of earners in the UK, and will give some renewal to the spirit of 'Old' Labour in time for the election. In addition to a large chunk of money to invest in green technology, Darling had some limited measures yesterday such as state pensions to rise by 2.5% and from May motorists can scrap their ten year old car and gain £2,000 off a new one. Also redundancy pay will rise to £380 per week in October. On the other hand a rise in fuel duty, up 2p a litre in September won't help, and then by 1p a litre each year from next April for four years won't help.

All in all a budget to forget, and we will be repaying the cost of this latest boom and bust for a very long time to come.

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