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Chancellor will need a magic moment

This week’s Budget will more closely resemble a performance by magician Paul Daniels than a speech by Vilfredo Pareto or Arthur Cecil Pigou, both influential economists. With little if any cash at his disposal chancellor Alistair Darling’s second Budget is likely to produce more smoke and mirrors than anything of substance for taxpayers, let alone the mortgage market.

Pareto and Pigou were excellent economists. Pareto devised the principle that 80% of a firm’s business comes from 20% of its client base – a fact that is as true today as it was 100 years ago. Meanwhile, Pigou taught at Cambridge University’s school of economics, whose alumni have since shaped the world in which we live.

Alas, Darling is a lawyer and they tend to be slippery types, more like the aforementioned Daniels – illusionists at the best of times. But to compound his problem Darling is a lawyer with his hands pretty much tied.

Since his first Budget last March and even since his pre-Budget report in November not only has the UK’s economic health plummeted but so has the world’s. You almost have to feel sorry for the man. Only 12 months ago tax revenue was good and the spending was easy. Today, tax forecasts are nothing to sing about.

The Institute for Fiscal Studies has already pointed out that the UK’s budget deficit will swell for many years to come. Even Bank of England governor Mervyn King has broken with protocol and spoken out, suggesting that the government cannot go on printing money. With this he has dashed Prime Minister Gordon Brown’s hopes of upping his programme of so-called quantitative easing and even paving the way towards raising cash from that pall bearer of dying countries, the International Monetary Fund.

At the end of last month Darling told the parliamentary Treasury Select Committee that the UK would have to accept large fiscal deficits for the next few years so, rather like those who are charged with running our nationalised banks, he finds himself between a rock and a hard place.

Whatever he decides to do this week, much like the bosses of those beleaguered government-owned banks repossessing homes, he’ll be damned if he does and damned if he doesn’t. If he doesn’t act he’ll be relying on reforms in place since the pre-Budget report to sprout green shoots both in the economy and in newspaper headlines.

Then again, he might surprise us all and pull a rabbit out of the proverbial hat. After all, Daniels was always good at that. And you’d like that. Not a lot, but you’d like it.


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