Bust Britain's fantasy budget

22 April 2009 By Ian Campbell

What should the chancellor do in the face of a deep recession? Alistair Darling took flight from reality. He resorted to unrealistically optimistic economic assumptions and the pretence that gargantuan deficits would not be a problem. Financial markets may yet change his mind.

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Alistair Darling, the UK Chancellor, presented his budget to Parliament on April 22. He forecast that the economy would contract by 3.5% in 2009 but grow by 1.25% in 2010. He said public borrowing would increase to a record £175bn in the 2009/10 fiscal year and forecast borrowing requirements of £173bn, £140bn, £118bn and £97bn in the four subsequent fiscal years.

The budget proposes an increase in income tax on the highly paid, beginning in April 2010. Those earning more than £150,000 will face a marginal tax rate of 50% above the current maximum rate of 40%.

There was an immediate increase in taxes on alcohol and tobacco of 2%. Fuel duty will rise by 2p per litre from September and then by 1p a litre above indexation each year for the next four years.

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