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Opposition label Budget 'fantasy' Darling facing Budget criticism
(about 1 hour later)
Opposition parties have attacked as "fantasy" economic growth predictions contained in Alistair Darling's Budget. Chancellor Alistair Darling has defended his Budget after opposition parties criticised his forecast for economic growth as a "fantasy".
The chancellor said the UK economy would return to growth by the end of 2009, expanding by 1.25% next year and 3.5% by 2011. He predicts the economy will return to growth by the end of 2009, expanding by 1.25% next year and 3.5% in 2011.
Mr Darling's forecasts have been called "preposterous" and "ludicrously optimistic" by opposition politicians.Mr Darling's forecasts have been called "preposterous" and "ludicrously optimistic" by opposition politicians.
But the chancellor told the BBC his prediction for next year was "within the range of outside forecasts". But the chancellor told the BBC he remained "confident" about "the fundamentals of the economy".
In Wednesday's Budget, he said the UK would have to borrow a record £175bn as he announced measures for reversing the sharpest contraction of the economy since World War II. He also said his prediction for next year was "within the range" of expert forecasts.
The borrowing figure is far higher than Mr Darling had previously estimated. IMF figures
'Fantasy land' In Wednesday's Budget, Mr Darling said the UK would have to borrow a record £175bn this year as he announced measures for reversing the sharpest contraction of the economy since World War II.
In his Budget statement, the chancellor predicted the economy would shrink by 3.5% in 2009 - higher than he had forecast in the pre-Budget report - but suggested it would return to growth by the end of the year. Today doesn't look good in terms of headlines and I've been resigned to that for some time Alistair Darling
However his forecasts that the UK economy would grow by 1.25% next year and 3.5% in 2011 were questioned by opposition parties and other groups. The borrowing figure is far higher than he had previously estimated.
Within an hour and a half the International Monetary Fund had put forward a more pessimistic forecast for the year - predicting the UK economy would shrink by 4.1% this year and by 0.4% next year. In his statement, the chancellor predicted the economy would shrink by 3.5% in 2009 - higher than he had forecast in the pre-Budget report - but suggested it would return to growth by the end of the year.
Within an hour and a half the International Monetary Fund had put forward the more pessimistic prediction that the economy would shrink by 4.1% this year and by 0.4% next year.
Mr Darling said experts had made a "wide range of forecasts" that his was within this.
Asked whether government spending had been unsustainable, he said: "In the last 10 years we've made a big difference to the quality of our health service and education.
KEY POINTS 50% tax rate for earnings over £150,000Big debt and deficit increasesEconomy shrinks at record ratePublic spending squeeze plannedBooks not balanced until 20182p on fuel, 1p on a pint of beer and 7p on cigarettes£15bn public sector 'efficiency savings'Claw back tax relief on top earners' pension £2bn help for young unemployed£1bn to boost housing market£2,000 car scrappage scheme At-a-glance: Budget 2009 Analysis: Election countdown Tax rise as UK debt hits record Send us your commentsKEY POINTS 50% tax rate for earnings over £150,000Big debt and deficit increasesEconomy shrinks at record ratePublic spending squeeze plannedBooks not balanced until 20182p on fuel, 1p on a pint of beer and 7p on cigarettes£15bn public sector 'efficiency savings'Claw back tax relief on top earners' pension £2bn help for young unemployed£1bn to boost housing market£2,000 car scrappage scheme At-a-glance: Budget 2009 Analysis: Election countdown Tax rise as UK debt hits record Send us your comments
Mr Darling said he had "good grounds" to be confident because of concerted action taken by countries around the world to boost their economies. "We have increased police numbers and improved the transport infrastructure. We have done a lot."
He told the BBC there had been a "wide range of forecasts" by experts and that his were within this. He added: "With the world economy set to double in the next 20 years, we can be up there in the front.
Mr Darling added: "We've had to take extraordinary action because these are, I'm afraid, extraordinary times... "The fundamentals of the economy, the strength of our economy - despite what is happening just now, I remain confident we can seize those opportunities and that is the vision I've got for the future.
"I did say last summer that we were facing the worst economic situation for 60 years and the consequences would be profound, and that remains the case. "Today doesn't look good in terms of headlines and I've been resigned to that for some time, but I believe we have reason for confidence and we should not get ourselves into a reason of believing otherwise."
"The big question is, in the face of all that, how do you react to it?" The Conservatives are expected to face pressure from grassroots members to promise to scrap Mr Darling's new top rate of income tax of 50% on earnings over £150,000.
He added: "I believe that what I set out yesterday does begin to deal with these problems." In one of the biggest surprises of the Budget, the new rate - an increase on the 45% proposed in last November's pre-Budget report - was brought forward a year to begin in April 2010.
But the Conservatives said it was a "dishonest Budget" based on "fantasy forecasts".
Shadow chief secretary to the Treasury Philip Hammond told the BBC: "The government hasn't taken the opportunity to be honest with the electorate about the scale of the problems today.
"Alistair Darling is predicting 1.25% growth next year. The IMF is saying the economy will still be shrinking next year, 0.4%.
"He's made a prediction of growth the year after which is frankly fantasy land prediction, and all of that has a huge implication for the scale of the problem that he has to tackle."
Liberal Democrat Treasury spokesman Vince Cable said Mr Darling's figures were "utter fantasy" and his party leader Nick Clegg said the "lamentable failure" of the government to get its predictions right would lead people to believe they were living in a "fantasy world".
Tax surprise
The Confederation of British Industry also raised concerns about "optimistic" growth forecasts.
Director general Richard Lambert said: "The key question for this Budget was whether it set out a credible and rigorous path for restoring the public finances to health. The CBI's preliminary judgment must be that it does not."
But the Budget was welcomed by the Unite union, which said it had put "Labour back on the side of working families" and the British Chambers of Commerce, which said there were some "good measures" to help businesses.
FROM THE TODAY PROGRAMME More from Today programme
The Conservatives are expected to face pressure from grassroots party members to say they would scrap Mr Darling's new top rate of income tax of 50% on earnings over £150,000.
In one of the biggest surprises of the Budget, the new rate - an increase on the 45% Mr Darling had planned in the pre-Budget report - was brought forward a year to begin in April 2010.
If that happens before the next general election, Labour will have broken a manifesto pledge not to increase the top rate of tax during this Parliament, but Mr Darling said it would "pay for additional support for people now".If that happens before the next general election, Labour will have broken a manifesto pledge not to increase the top rate of tax during this Parliament, but Mr Darling said it would "pay for additional support for people now".
The chancellor has also said he will reduce pension contribution relief in an effort to stop big earners shifting more of their salary into their pension fund to pay less income tax, but this does not come into force for two years. 'Honesty needed'
Asked about the 50% tax plan, shadow chancellor George Osborne told BBC Radio 4's Today programme: "I can't promise to reverse it. I'm sorry, but I can't give that promise." Shadow chancellor George Osborne said Labour had "completely messed up the finances of the country".
He said: "Yesterday all that you got was a fantasy Budget - a claim that you could deal with the country's massive debt problems by simply taxing people over £150,000.
"I don't think the chancellor is being honest with the British people about that and what they want from the Conservative Party, hopefully the next government, is some honesty, some straight talking about the problems this country faces and the answers."
Asked whether the Tories would abolish the 50% top rate of income tax, Mr Osborne said: "I can't promise to reverse it. I'm sorry, but I can't give that promise."
FROM THE TODAY PROGRAMME More from Today programme
Mr Osborne said taxes on high earners were not his "priority", but added: "I don't agree that long-term higher marginal tax rates are good for the economy. Tony Blair used to say that."
Liberal Democrat Treasury spokesman Vince Cable said the Budget figures were "utter fantasy".
He added: "I just didn't understand where this spectacular growth rate, this 3.5% which they're assuming a year from now... came from."
His party leader Nick Clegg said the "lamentable failure" of the government to get its predictions right would lead people to believe it was living in a "fantasy world".
The Confederation of British Industry also raised concerns about "optimistic" growth forecasts.
But the Unite union said the Budget had put "Labour back on the side of working families" and the British Chambers of Commerce, which said there were some "good measures" to help businesses.
BUDGET FORECASTS Growth - Minus 3.5% in 2009, rising to 1.25% in 2010 and 3.5% in 2011Debt - Doubles to 79% of GDP by 2013Deficit - Rises to £175bn for two years before falling to £97bn in 2013/14 SNP attacks spending 'cut' Wales faces £416m budget squeeze NI reaction to Darling's BudgetBUDGET FORECASTS Growth - Minus 3.5% in 2009, rising to 1.25% in 2010 and 3.5% in 2011Debt - Doubles to 79% of GDP by 2013Deficit - Rises to £175bn for two years before falling to £97bn in 2013/14 SNP attacks spending 'cut' Wales faces £416m budget squeeze NI reaction to Darling's Budget
It was "nonsense" to put this forward as a solution to the government's debt problems, he said. Mr Darling's squeeze on public sector finances is also likely to come under further scrutiny as opposition parties seek more details of where cuts might come.
Mr Osborne said taxes on high earners were not his "priority", adding: "I don't agree that long-term higher marginal tax rates are good for the economy. Tony Blair used to say that." The chancellor said spending would grow by only 0.7% per year from 2011 - a lower rate than when Margaret Thatcher was in power.
BBC political editor Nick Robinson said Labour had ditched its pledge not to raise income tax before the next election in an effort to "wrong foot" opponents and cheer its core supporters, as well as raising money.
Mr Darling's public sector squeeze is also likely to come under further scrutiny as opposition parties seek more details of where cuts might come.
He said spending would grow by only 0.7% per year from 2011 - a lower rate than when Margaret Thatcher was in power.
Budget measures aimed at helping companies include deferring business rate payments, a £2,000 payment to car-buyers who scrap vehicles more than 10 years old and finance help for the construction industry.Budget measures aimed at helping companies include deferring business rate payments, a £2,000 payment to car-buyers who scrap vehicles more than 10 years old and finance help for the construction industry.
The director-general of the British Chambers of Commerce, David Frost, said: "I think there's an understanding now from the chancellor that it's business that hauls us out of this very deep recession.The director-general of the British Chambers of Commerce, David Frost, said: "I think there's an understanding now from the chancellor that it's business that hauls us out of this very deep recession.
"It will no longer be public expenditure. It won't be the consumer. It will be business. So there are I think a number of measures in there that have the potential to really start to stimulate some business growth.""It will no longer be public expenditure. It won't be the consumer. It will be business. So there are I think a number of measures in there that have the potential to really start to stimulate some business growth."