New fuel for Britain's tired engine

PATRIOTISM may be the last resort for scoundrels promising British jobs for British workers, but when it comes to a penniless Prime Minister searching for an economic silver bullet to save his skin, only a green Budget will do. If all else fails, hug the trees and hold on tight until the storm passes.

Gordon Brown is in a tight spot after last week's Smeargate revelations. On the economy, despite a huge fiscal stimulus and the adoption of quantitative easing, the longed-for green shoots of recovery are as elusive as ever.

So how will voters view an expansive package of green measures that prioritises the environment when they face tax rises and cuts in services, and can Brown and Darling's green policies be justified as the centrepiece of what is effectively an austerity Budget?

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So far Brown and Chancellor Alistair Darling have been behind the curve when forecasting the severity of the downturn. As recently as November's Pre-Budget Report, Darling predicted that GDP would shrink by between 0.75% and 1.25%; the Bank of England now believes that figure will be 3.5%. In last year's Budget, Darling envisaged a debt of 42.5bn for 2009 when the real figure is more than 90bn. His forecast for 2010 was that we'd borrow 38bn; the true figure will be around 175bn. Public spending is predicted to reach an incredible 48% of national income next year.

In the circumstances there was an inevitability about the Government's enthusiastic embrace of the green agenda; Brown's one remaining chance to square the economic circle.

It is, of course, just possible that the campaign to brand this as a green Budget is not just a cynical exercise in drawing positives from the bleakest economic outlook for a generation. Like Barack Obama, Brown has placed the threat of global warming almost on a par with the economic downturn, and recently identified the fight against climate change as the means by which the economy will be turned around.

The green measures that will be unveiled by Darling on Wednesday are "a major part of our plan for the recovery in the Budget", said Brown, who expects his green policies to lead to the "creation of 400,000 green jobs (by switching to a] low-carbon economy" by 2017.

Patrick Harvie MSP, the leader of the Scottish Green Party, says "some of the measures likely to be in the Budget are worthwhile and to be welcomed". But he's under no illusions that the radical, wholesale change he advocates is on the agenda. "My fundamental objection is that there's no sense of Government trying to achieve a transformation of society or in the way our economy functions," says Harvie. "Our approach to industry, for instance, seems absurd: we should be promoting public transport but we've got bus manufacturers going out of business at the same time that we're paying people to buy cars."

The recent initiative on electric cars – which saw Lord Mandelson and Geoff Hoon whizzing around Knockhill in the first electric mini – is a classic example of why the Government is a convert to green causes. Politically, the pledge to spend 250m giving motorists willing to buy electric cars discounts of 2,000 to 5,000 was a no-lose proposition.

Not only was it a quid pro quo to get the go-ahead for the third runway at Heathrow, it is also money that won't be spent until 2011-12 yet gives the impression of helping a car industry on its knees. That's of some benefit when a substantial number of Britain's 800,000 automotive workers live in marginal constituencies in the West Midlands.

Whether the scheme itself will make a difference to global warming or sustain motor manufacturers remains to be seen. Only 0.01% of cars in Britain are electric, and at 5,000 per car only 50,000 more would be made (300,000 new cars were sold in Britain last month). The electricity would come from the National Grid, which gets 75% of its power from fossil fuels. Far from saving emissions, some experts believe electric cars could double them.

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The law of unintended consequences is also thriving with the plan to give motorists a 2,000 trade-in for cars over nine years old, which would then be scrapped. The plan is to emulate the German scheme where half a million people signed up in a week, increasing sales of new cars in Germany by 40%.

For a British car industry reeling from a 30% fall in sales, it sounds like a godsend, but the truth is altogether different. The scrappage scheme would simply help foreign manufacturers, because 86% of vehicles bought in Britain are imported while 75% of cars built here are exported. The strength of sterling and incentives given by foreign governments are key, not what our own Government does.

As with the non-delivery of new eco-homes, the Government's renewable energy policy is in trouble. A lack of finance, a hike in costs because of sterling's weakness and onerous planning restrictions have made 12bn of wind projects designed to power 1.3 million homes unviable without 2bn of state aid, while smaller companies want 625m in subsidies for microgeneration and solar projects.

Substantial sums are likely to be forthcoming in the Budget to enable projects such as the 3bn London Array offshore wind farm to proceed, as well as funds to build the first 'clean coal' plant. Less headline-grabbing but more effective is the 7bn scheme to fit 'smart' gas and electricity meters into all 26 million UK houses. These allow us to monitor usage and have been proven to drastically curb consumption.

That, though, is a fairly isolated case of green measures being led by price. Although the environmental case for greening the economy is unanswerable, it can be expensive. Green sceptic Ben Pile, who writes for The Register website, presents a compelling case that each green job will cost 1.2m. As the abandonment of organic foods during the recession has shown, when there's a clash between voters' green aspirations and their wallets, there's no contest.

Demonstrating he's a man of principle while also appealing to voters' pockets is a difficult balancing act for Brown, especially when the parlous state of the national finances means that a combination of tax rises and spending cuts is the only show in town.

How the Budget will affect you

Measures being considered by Chancellor Alistair Darling for inclusion in Wednesday's Budget.

HOMES: Stamp Duty to be kept at 175,000 or set permanently at 150,000. Plans on how to get banks lending more money.

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TAX: VAT to go back up to 17.5% and may rise as high as 20%. Plans for people earning over 150,000 to face a 5p increase in the top rate of tax may be brought forward to 2009, as might plans for National Insurance to rise by 0.5% for anyone earning over 19,000. Possible wealth tax for those worth over 1m, possibly in the form of a tax on higher-income taxpayer's pensions. Cessation of child benefit payments to top rate taxpayers.

SAVINGS: Increase in ISA limits to 10,000.

TRANSPORT: Rises in fuel duty. Some airport taxes on long-haul flights to double.

JOBS: Extra funds for retraining unemployed. Action to bring pay rates for quango bosses into line with civil service.

CARS: Scrappage scheme will allow drivers who scrap their old vehicle to receive 2,000 towards the cost of a new or nearly new car.

GREEN MEASURES: 250m set aside to give grants of 2,000-5,000 for motorists to buy electric cars. Up to 2.65bn to fund troubled renewable energy schemes, plus a loosening of planning regulations for wind farms.

BUSINESS: Extension of the "loss carry back scheme" which allows struggling companies that make a loss in 2009 (maximum 50,000) to offset that loss against profits accrued in 2006-2008. Possible freezing of business rates.