So Alastair Darling has commended his budget to the house, and we’re all left to sift through the details and see whether or not the chancellor got it right. The headlines are all about the return of old Labour, taxing the rich, and the huge levels of debt. So how does the budget shape up on economic justice and the environment?
On paper, this new high tax rate will tax the wealthiest. That’s bad news for them, but the government has to raise funds from somewhere, and it’s better that it comes from those most able to contribute. Mayor of London Boris Johnson has lamented that this targets the City, but since the City is most responsible for our current crisis, this seems perfectly fair to me.
However, that doesn’t mean the new tax rate is necesarily economic justice in any significant way. The rich have accountants and are expert at finding tax loopholes. Unless the government closes an awful lot of them very fast, they won’t raise any money from the wealthy. If they don’t, it would expose the new tax rate as a political move, made to appeal to those who like the idea of punishing the City.
Further, as the Lib Dems have been suggesting, Britain’s taxes remain very unequal, particularly since the government tweaked the bottom rate last year. The burden on the poorest could still be lifted, so that nobody who earns less than £10,000 pays any tax for example.
There were concerns that the financial crisis would mean sweeping cuts to Britain’s aid budget. Fortunately those haven’t materialized. It wasn’t in the speech, but Oxfam report that the detail specifies that the UK will remain on track to give 0.7% of its income to aid. This is good news, and sets a great example to other countries who might be tempted to go back on their promises. “I am proud that, despite the difficult global economic circumstances, this government has made the choice to keep our pledges to the world’s poorest people – and that we will continue to be well on track to meet the historic 0.7% aid commitment” said Douglas Alexander, Secretary of State for International Development.
There was talk last week of this being the ‘greenest’ budget ever. Perhaps, but that’s not saying a whole lot. The most important point is the legalling binding target to lower carbon emissions by 34% by 2020. That’s apparently a world first, and Britain making a unilateral decision. Campaigners say that’s not enough, but it’s a start.
There is new money for environmental measures – £1.4 billion across home efficiency schemes, renewable energy, and low carbon technology. This is good. There was a slightly alarming announcement yesterday that there was to be a series of new coal power stations, all using carbon capture and storage (CCS). CCS doesn’t exist yet, of course, so there was money to develop and pilot it. My first thought was that if CCS turned out to be unworkable, and we’d built the power stations, surely we would go ahead and use them anyway, and by doing so take a giant leap backwards in emissions. Ed Milliband says that won’t happen, but the wording of his statements today leave lots of wriggle room for the energy companies.
The £300 million car scrappage scheme is equally compromised. The goverment will offer a £2,000 discount to those trading in old cars for new ones. Despite the fact that modern cars are more efficient, this is not an environmental measure. If it was supposed to be about climate change, the offer would be limited to cars with low emissions or smaller engine sizes, or even electric cars. As it is you can buy a government subsidised Hummer or Ferrari until March 2010 if you wish, so your emissions might actually go up.
Besides, any saving on emissions may be well cancelled out by the environmental cost of making the car. A new car is a hugely energy-intensive purchase. Five tonnes of CO2 are emitted in the process of the average car, which could double your emissions at a stroke for that year. It is unlikely that the scrappage scheme will lower emissions, and since only 15% of cars on the road are British-made, this £300 million won’t even save jobs. It should have been spent on public transport instead.
The biggest gasps in the house yesterday came when Darling announced Britain’s borrowing for this year – £175 billion for this year, a project £173 for next. These are very large holes in our national finances.
The problem is that this kind of debt can only be taken on and financed if things turn around very quickly. Darling’s own estimate is that the economy will be growing again by the end of the year, and will grow 3.5% next year. Everyone says that’s optimisitic, and if they’re right, we’re in trouble.
I see a bigger problem – peak oil. The UK has enjoyed 30 years of cheap energy from the North Sea, a bigger factor in the Thatcher boom years than is generally acknowledged. We have produced more oil than we consumed since the late 70s, but that giant energy subsidy ended in around 2005. Domestic oil supplies peaked in 1999 and we’re importing an increasing amount of our energy, including natural gas from Norway and Russia. That’s a huge source of national income that has gone into abrupt reverse at just the wrong moment.
It’s no surprise then that yesterday’s budget included money for further extraction of North Sea oil, getting those last dregs out. The full implications of the end of UK oil and gas are yet to come, but I’ve got a feeling they will be a very serious hindrance to our growth in coming years. Those debts could come back to bite us.