Darling's Budget speech to say that recession will be 'over by Christmas'

Published on Sunday 19 April 2009 22:01

ALISTAIR Darling will forecast the recession will be over by Christmas when he makes his Budget speech on Wednesday.

The Chancellor will use his address to unveil measures to help Britain recover from the slump at the earliest opportunity. These will include 500 million of "green" incentives to continue the UK's drive towards a low-carbon economy.

As Business Secretary Lord Mandelson promised that the government was "going for growth", Mr Darling took the unprecedented step of posting a video message on the YouTube website to hint at what would be contained in his Budget speech this year.

He said: "We've got to prepare for the future, to invest in Britain's future to ensure that we can take advantage of the upturn, of the recovery, when it comes, and it will come.

"I think we have underlying strengths that we can play to and I want to build on those so there are jobs and good prospects for the future.

"There are huge opportunities, and I want to make sure we're ready and prepared to take advantage of them."

A source added: "The central theme of the Budget is going to be investing in the recovery."

The package of green measures is expected to include 100 million to insulate up to 100,000 council properties, and 100 million of loans and advice for small firms to purchase more energy-efficient equipment.

A third measure will create eight pilot schemes under which homes will be powered by solar energy. These will build on green initiatives announced in November's pre-Budget report.

Mr Darling is expected to increase national borrowing as part of his commitment to begin the post-recession fightback, while also making clear how the extra debt will be repaid.

Last year he announced a 45 per cent income tax band for people earning 150,000 and above, and a slowdown in government spending to an annual rate of 1.2 per cent, both to be introduced in 2011. Similar clarity on repaying the increased borrowing over the medium term is expected.

But Mr Darling's preparations were interrupted today by a warning from the CBI that the recovery would not come by the end of the year, but would only start a year from now.

And George Osborne, the shadow chancellor, said Wednesday would be a "day of reckoning" for Labour which would lay "the economic carnage of the last ten years" bare.

Mr Darling is expected to use his second Budget speech to say he expects the UK economy to shrink by about 3.5 per cent this year, against a drop of 0.75 per cent-1.25 per cent predicted in November's pre-Budget report.

The figure is central to his calculations, as a growing economy will create more jobs and provide more tax revenue for the Treasury, while a shrinking one will see its tax take drop and send the cost of social security benefits soaring.

However, Mr Darling will start off on the back foot, as the latest unemployment figures are due to be released hours before the Budget and are set to show the UK's jobless total heading towards three million.

Mr Darling's speech is expected to contain measures to help restore mortgage lending, provide training for graduates who will struggle to find a job this summer and crack down on tax dodgers.

Mr Osborne said a Conservative government would halt next year's 0.5 percentage point rise in national insurance, which will hit workers earning less than 20,000 a year.

TORY PLANS TO BALANCE BOOKS

A SLOWDOWN in the funding of public services rather than rises in income tax would be the focus of a Tory government as it attempted to rebalance the UK's books.

Shadow chancellor George Osborne said yesterday that savings would "primarily" come from spending restraint – the Tories vow to reduce spending below Labour's planned 1.1 per cent annual rises – as he cuts a net debt that could total 175 billion.

Chancellor's boost for North Sea

SCOTLAND is expected to receive a substantial boost in the Budget with new incentives to encourage extraction of up to two billion barrels of North Sea oil.

This could see production increase by up to 20 per cent over the next five years – at a time when the amount extracted from the North Sea has been declining for years.

The oil could have a total value of $100 billion (67 billion), generating a substantial tax take for the UK Treasury's diminished coffers.

An estimated 25 billion barrels of oil remain under the North Sea but they are becoming increasingly difficult – and more expensive – to extract.

The Treasury's plan is to incentivise oil companies to continue drilling for the two billion barrels that can be taken from "economically viable but commercially marginal" oil fields, many of which are found around Orkney and Shetland.

The initiative has been welcomed by oil industry experts. The number of wells drilled for exploration has collapsed by 78 per cent in the first three months of 2009, and this could help reverse the trend.

A decade ago the North Sea produced 4.5 million barrels of oil a day but that figure is expected to drop to 1.3 million by the end of the year.

Derek Henderson, an oil economist, said it was fantastic news. "The oil industry is going through enough difficulties and needs all the help it can get," he said.

The initiative was also welcomed by the SNP, which said it been calling for such an initiative for the last five years.

An SNP spokesman said: "A very modest investment could generate significant additional activity in the North Sea.

"What this does show is just how dependent the UK exchequer remains on Scotland's oil revenue."

He said that public sector pensions were a "long-term burden on the state" but said he was "not out to slash and burn the public sector".

Mr Osborne said: "It's not my economic hole I'm trying to climb out of, it's Gordon Brown's economic hole."