Teresa Hunter: Our hangover from the party will be long and painful

Published on Saturday 25 April 2009 15:27

'THE party's over, it's time to call it a day, they've burst your pretty balloon, and taken the moon away."

This classic ballad of the 1950s was written for an audience that knew all about hard times and austerity. After last week's Budget, the words have a contemporary feel.

It goes on: "Just wind up the masquerade, and make your mind up, the piper must be paid."

On the most optimistic assumptions it will take 10 years to bring our 1 trillion debts back to more manageable levels. Children in infant school will be in college and those in the prime of their working lives long retired before we are rid of this burden.

It will be a world forged by years of savage spending cuts and tax increases, whichever party is in power.

For all the Government talks of soaking the rich, they are too tiny in number, and hardly any will pay this new 50% tax.

To raise serious money, you have to hammer the great mass of the working population, which has begun already with the fuel escalator and other increases.

Much worse is to come. Lib Dem economic spokesman Vince Cable is one of the few prepared to tell it straight. He says whole swathes of expenditure will have to be axed, such as child trust funds, public sector pensions, university places and ID cards. Prepare for winters full of discontent.

I'd go further, and rather than looking at what spending to cut I'd say we need to go back to basics and ask ourselves what services we should be paying for… we want to pay for. Hospitals, schools, fire services, police, roads and other essentials, of course. But everything else can go and public sector workers will have to start being realistic, like those in the private sector have already been forced to be.

"The party's over, the candles flicker and dim, you danced and dreamed through the night, it seemed to be right…"

But it was never right, and most maddening of all this could all have been avoided. I was clearing out some old books when I came across Fred Harrison's Boom Bust: House Prices, Banking And The Depression Of 2010. I haven't looked at it since I reviewed it, when it came out in 2005.

House prices were booming, and although plenty of us thought it would end in tears, his predictions now stand out as prophetic.

Harrison was savage about the ambitions of the Labour Party and Gordon Brown in particular, and blamed them for the catastrophe which, back in 2005, he believed lay ahead. If only they had listened.

Below we discuss selling in May and going away. After this Budget, some may dream of going away and never coming back. And some of these might even be Labour backbenchers.

So let's all sing together: "Now you must wake up, all dreams must end, Take off your makeup, the party's over, It's all over, my friend."

Double trouble

I REMAIN to be convinced that Labour will lose the next election, although it seems bent on self-destruction. To hit the pensions industry with a double whammy given the dead men walking that are the rest of Scotland's financial services industry seems positively suicidal.

Not only has Chancellor Alistair Darling removed pensions tax breaks for higher earners, but he also plans to tax the employer contribution into any fund.

If this is revenge for Fred Goodwin's pension, why should those working in Scotland's pension industry pay?

These measures could have serious implications for the future of the remaining final salary pension funds, and will remove any incentive for higher earners to put money into their plans, the life blood of the Scottish insurance industry. This will hit insurers hard.

Many entrepreneurs, small business people and other high earners delay making pension contributions until toward the end of their career, when they often make huge injections of cash into their plans as they approach retirement.

Now their contributions will be restricted to 20,000 a year if they earn more than 150,000. And they will have to pay tax on any employer contribution.

Why does Gordon Brown have it in for private pensions?

Homes hammered

IF YOU have a holiday home in Europe with a mortgage that you rent out for this tax year you will be able to offset the interest on your mortgage and other expenses against your salary, as you can with UK properties.

The bad news is it looks like from next April these special arrangements will end.

This will be a bitter blow for those letting Scottish cottages as a holiday business.