A very political budget

Alastair Darling has grown greatly in Chancellor, and he was in full command of his brief today. By being able to highlight better than expected tax receipts and lower borrowing, he was on strong ground arguing that the Government's approach to the economy has been showing signs of success. His announcement on a stamp duty holiday for first time buyers up to £250,000 cleverly linked its funding to a higher duty on homes worth over £1 million. He wisely focused a range of new tax reliefs on entrepreneurs, innovation and business investment, with a new national investment bank to support green transport and energy. And he made much of contrasting Labour and Tory approaches to public service guarantees, employment training and high speed rail. His plans to clamp down on tax avoidance in Grenada, Dominica and Belize were a masterstroke, showing a mischievous sense of humour. Given the perceived limits on his room for manouevre, this was a sensible package that put Labour in a stronger position than before. Gordon Brown should make clear that in the still limited chance that he should win the election, he will retain the experienced reassurance of Alastair Darling at the Treasury. Being able to draw a sharp contrast with the woeful George Osborne would be a vote-winner.

Budget balance

Doubtless there will be plenty of grumbles about today's pre-budget report in the days ahead. Some will say that the cuts should be deeper - though a 0.8% increase a year for two years is pretty deep, especially once the welfare budget is considered - while there will be complaints about the national insurance rise. But the real problem for the Tories is that the more they rant, the less they tell us about what they would really do instead. I've just been watching shadow chief secretary Philip Hammond on Sky News who had nothing but rhetoric to contribute to the debate. Indeed, what impressed most about the PBR speech was the unflashy authority of Alastair Darling, whose stature has grown greatly in the financial crisis, which compared starkly what the shrill response of George Osborne, who has experienced a big dip in his reputation by calling it wrong last year. The idea that Osborne could be allowed to let his economic ignorance loose on the economy in six months time is something that really ought to worry the markets.

MPs wanted: no human beings need apply

It may not be fashionable to say so, but the news that Jacqui Smith and Alastair Darling are likely to be out of the cabinet as a result of the never-ending expenses saga is a cause for concern rather than rejoicing. I have known both for a long time, and I know both to be able, dedicated, honest people, who came into politics to make a difference and have been talented ministers in their time with the Labour government - I know in particular how much difference Jacqui made on schools policy, and her talents are sorely missed at education these days. But Jacqui has stronger support in Redditch than people think, as her result in 2005 (where there was no swing against Labour) showed and I hope she can keep her seat.

But there is a wider point here. The BBC poll today tells us that half the public thinks that at least half of MPs' are 'corrupt'. And there is no doubt that the last month has been a positive boon for the white van man/saloon bar world view, harnessed by the BNP/UKIP axis no doubt to shocking proportions this Thursday.

In the process, nobody wants to stand up for politicians. Of course, there are a few who have milked the system shamelessly and they deserve whatever they get. (I don't believe that includes either Darling or Smith - as both got caught out primarily because of a 2004 rule change affecting ministers and their designation of second home). Most MPs claimed allowances to which they were told they were entitled, and were not trying to milk the system.

And the Telegraph coverage has now lost all sense of proportion: listening to Frank Cook's apology for a claim (that was rejected) for a £5 church donation ending up in the Fees Office did not suggest someone trying to fiddle the system but an MP whose office has patently made a silly mistake. He did not deserve to see his 26 years in parliament turned into a piece of faux Sunday newspaper outrage. Was this really Sunday's biggest news?

Fewer and fewer people were willing to enter politics for the money, even with the allowances as they were. Most of those across all parties have worked for years, often at considerable personal cost, building up local support to become an MP because they believe in democratic politics and the contribution they might make to their community or causes.

They work incredibly hard in their constituencies dealing with expectations that have grown as their collective reputation has declined. As David Aaronovitch says today, if they are guilty of anything, it is not realising the impact of what John Keane calls 'monitory democracy' - the onslaught of Freedom of Information, the Internet, 24 hour news and new technology. Few of the political giants of the past would stand a day's scrutiny under this system, let alone years of it.

So, there will be changes to the systems of expenses, and there may be some democratic reforms too - though they should be done with cross-party support, not the shameless self-interest of some party leaders. But in the end we still need people to want to become MPs because we need people who are willing to make huge sacrifices to their personal life (and for most, becoming an MP means you have little time for much else) to do so.

What we are now likely to get as a result of the relentless assault of the last month are humourless self-righteous sorts who are, of course, incapable of making the slightest mistake. In such circumstances, the only person who would want to be an MP is someone with no hinterland or human frailties, or an egomaniac extremist who plays to the populist mood.

If people don't think much of our current MPs, just wait until they see what comes next.

This post was picked up by the Local Democracy blog.

Is the tax rise good politics?

There is no doubt that the big story out of the budget politically will not be the huge levels of borrowing or even the Chancellor's optimistic growth forecasts for the coming years. It won't be increased duty on spirits or petrol: that is a given in budgets. Nor will it be the very welcome boosts for pensioners and savers, or the extra child tax credit, let alone the money for colleges I mentioned in the previous posting. All of these things are valuable, and Alastair Darling presented them well.

The story will be around the increased tax on high earners, some of which was announced in the pre-budget report, which means that those over £150k a year lose higher income pension tax relief and pay 50% on earnings above that level from April 2010, and those above £100k have their taxes increased as a result of the removal of their tax-free allowances.

There are three questions to be asked about the strategy. The first is whether it will raise much money. It can reasonably be argued that the extra millions or even billions it does raise each year is financing useful measures such as the extra training for the unemployed or college places. But the same extra revenue could be raised in many other ways without touching basic rate tax.

The second is whether it is fairer. And on that score, it is hard to argue against the changes, as it is being targeted at the top 2% of income earners. The system is certainly more progressive.

But is it good politics - the third and trickiest question? On the one hand, it puts the Tories on the spot, and they have been careful not to announce any repudiation of the measure even though they know they could do so at relatively little financial cost. Doing so would paint them as on the side of the rich, a group that includes traders and bankers whose unpopularity knows no bounds. Moreover, it would hardly fit with their cost-cutting lectures on public services. So, as a 'dividing line' it is probably good politics. And the Tories would be wiser taking Danny Finkelstein's prescient advice on this score than Iain's instant reaction.

However, whether it is good politics for Labour in the long term is another matter. It may well be popular with some of the party's base support and Guardian columnists. But an important part of New Labour's promise and success has been that it would not raise taxation, and until November, the party kept to its promise (albeit with a 1% rise in national insurance). The politics of doing so was not particularly about attracting the very rich to vote Labour: their proportions were always going to be very small and their support smaller. It was more about making Labour attractive to the aspirational middle, business-owning and professional classes, particularly in London and the South East. And while most would never earn more than £100k in 1997 - the level that some wanted at the time - or £150k now, they might aspire to do so.

At a time of recession, it is easier - as Obama has done in America - to justify raising taxes on a better off minority. It is hard for anyone to argue with higher taxes on the highest earners at present and to sound unselfish in doing so. So it may prove initially popular. But the willingness to increase the top rate of tax could make it harder in the future for Labour to build the sort of coalition that kept it in power for three terms. And that may mean that any short term political gain has longer lasting political pain.

This posting has been picked up by Iain Dale and the Observer.

The truth about the VAT story

When I was running David Blunkett's office in Opposition, we received a bit of paper that been designed to pressure No 10 for more money, with the admission that schools were short of money with the phrase "insufficient resources threaten the provision of education in the state school sector". I duly passed it on to the much-missed political editor of the Evening Standard, Charles Reiss, who made it his splash as it happily coincided with a cabinet awayday which was being seen as another relaunch of John Major's beleaguered government.

Needless to say the media diverted its attention to the leak story and the relaunch was suspended. Nobody remembers the leak now and it was of little long term consequence. Afterwards, when in government, one official told me that they were just relieved we hadn't seen the more radical statements in the rest of the paper.

In many ways the 1995 leak was more explosive than today's accidental publication of an earlier Treasury document on the Internet, because it confirmed what everyone in education already knew at the time, but which ministers had been denying. But it was also reasssuring to know that officials were aware of what was happening in the real world.

I was reminded of those events hearing the excitement surrounding today's story showing that ministers considered raising VAT to 18.5% in order to pay for the temporary cut. The controversy will play out but it is worth recognising the reassuring elements, which are stronger than those in the 1995 leak.

All sensible - and some radical - options are considered and should be considered over any policy. The only bombshell would have been if they had not considered the VAT increase option. The issue is not whether such options are considered, but what decision is made in the end and why. In a sense, a rise to 18.5% would have been the most logical way to pay for the VAT cut. But it would also have been the most regressive, as even the poorest have to pay it on many goods and services. The government opted for a more progressive method of repayment, which is to their credit.

But the fact that this was a serious option until the last minute also gives the lie to the notion that ministers have deliberately set out to wreck New Labour principles in order to pacify leftwing backbenchers; the top rate rise and NI increase were simply the least worst options.

How doomed are we, really?

As Alastair Darling does his best to emulate the doomladen tones of Frazer of Dad's Army fame with his statement that these economic times are the worst they have been for sixty years, Sean O'Grady offers a useful historical perspective in today's Independent on Sunday:

Even the most pessimistic independent forecasters don't see the economy in 2009 contracting by more than say 0.25 per cent. The worst years for growth since 1948 (when the economy shrank), were: 1991 (-1.5 per cent); 1980 and 1981 (-2.2 per cent and -1.3 per cent); and 1974 and 1975 (-1.7 per cent and -0.6 per cent). Few expect things to be quite as bad now: does Mr Darling? Current inflation, at 5 per cent or so, is not a patch on August 1975's record of 26.9 per cent. In terms of the financial system, the last time the banks were unable to provide credit to the wider economy on any scale was during the secondary banking crisis of 1973-74, a short-lived and minor affair, compared with our $1 trillion global meltdown. Then again, Mr Darling could be thinking of the Depression of 1930 to 1932, the last global credit crunch. Then the UK's economy declined by 15 per cent, many banks collapsed and the world was left with Hitler and the road to Armageddon.

But Darling was surely right to say:

We really have to make our minds up; are we ready to try and persuade this country to support us for another term?

I can think of better ways of going about it, myself.