Roger Bootle, economic adviser to Deloitte, gives his preview to the 2008 Pre-Budget Report, which will be delivered on Monday 24 November. His main points are as follows:

• Alistair Darling may be the man at the despatch box, but the main architect of this Pre-Budget Report will be John Maynard Keynes. With the Government having firmly signalled its intention to support the ailing economy with a much-needed fiscal boost, the key question is just how bold it is prepared to be.
• The case for a loosening of fiscal policy has grown steadily stronger over recent months as the outlook for the economy has deteriorated and inflation pressures have started to subside. With the effectiveness of monetary policy impaired by the credit crunch, it is time to use every weapon in the arsenal.
• Of course, tax cuts and spending increases will put further strain on the creaking public finances. But with the previous fiscal framework already blown to pieces, the Government appears to have concluded that there is little to lose. And if the package prevents the recession from becoming a depression, it may ultimately improve the fiscal position.
• So what should we expect? The Government will have to spend at least £15bn – around 1% of GDP – just to prevent an already planned fiscal tightening from deepening the downturn in the economy. To provide a meaningful boost, it may have to spend as much as £30bn.
• Some of this may be achieved by bringing forward capital spending projects. But if the Government wants to boost activity quickly, it needs to cut taxes too. Moreover, tax cuts need to be targeted at those people who will spend the extra income, not save it.
• At the very least, Mr Darling will extend the measures to compensate those affected by the scrapping of the 10p tax band implemented in April. He may also steal some of the Conservatives’ proposals on inheritance tax and national insurance. If he really wants maximum bang for his buck, however, big cuts in income tax or VAT may be needed.
• Of course, there is no guarantee that these measures would work. At the very least, they are unlikely to prevent the economy from contracting sharply over the next year or two. What’s more, the prospect of a major fiscal consolidation at some point casts a shadow over the longer-term outlook for the economy. But as Keynes himself said, in the long run we are all dead.

Notes to editors:

This press release has been prepared by Roger Bootle, economic adviser to Deloitte.  If you have any questions regarding the views in it, please contact Roger Bootle directly on 07887 955 875 or 020 7823 5000 or via email on business@capitaleconomics.com.

This press release contains general information only and is not intended to be comprehensive nor to provide professional advice.  It is not a substitute for such professional advice and should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business.  Deloitte & Touche LLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from acting as a result of any material in this publication.

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