Chancellor Alistair Darling is slashing taxes to kick-start Britain’s recovery. Rob Merrick and Tony McDonough report

THE public was urged to go on a £17bn spending spree to drag Britain out of recession in a dramatic emergency Budget yesterday – but warned that tax rises will follow the next election.

Chancellor Alistair Darling cut VAT and income tax bills, and hiked benefits for children and pensioners, in an enormous gamble designed to kick-start the economy and cut short the slump.

But he also laid bare the pain that will follow when bills must be paid, announcing an increase in national insurance (NI) in 2011. Those earning more than £150,000 will be hit by a new 45% tax rate.

And the cost to the nation’s finances will be huge. Borrowing will rise to an eye-watering £118bn next year, the highest in history, and debt will continue to rise until 2014, peaking at 57% of GDP.

Mr Darling told MPs it was a Budget for “exceptional economic circumstances”, insisting that Labour, unlike the Tories, would not “walk away” from people suffering because of the recession.

But Mr Darling’s proposals met with a muted response from Merseyside business leaders.

Economist Peter Stoney, a senior honorary fellow at the University of Liverpool’s School of Management, said it was “putting off the evil day”, adding: “The reduction in VAT will not work. People will see it’s a short-term measure that will be reversed.

“It’s made managing the economy very confusing. It’s a dogs dinner. He has sowed the seeds of future uncertainty by these huge borrowings.”

David Thompson, managing director of Virgo Retail, owner of Lewis’s department store, in Liverpool, said: “I don’t think it will give much of a boost to retailers in the short term. What is important for consumers is that they feel confidence in the financial system.” Jack Stopforth, chief executive of Liverpool Chamber of Commerce, welcomed the cut in VAT, but added: “Anything that encourages people to spend has to be good, but there is risk of a catch-22 where it may alert people to the idea things really are bad, that could make them more cautious.”

Dick Mawdsley, who owns Utility, which has two stores in Bold Street, Liverpool, a store in Preston, and an online business, said: “That 2.5% isn’t a big discount for most people. I don’t think people will feel the effect of benefit until January when they notice their outgoings have gone down quite a bit.” Shadow Chancellor George Osborne said the national debt would double to £1 trillion by 2015, adding: “That’s the bill for Labour’s decade of irresponsibility, initiated by this Prime Minister.”

The Government had primed “a huge unexploded tax bombshell, timed to go off at the time of the next economic recovery”, he warned.

The Chancellor’s aides said personal taxes would rise by £4bn a year by 2012, of which £3bn would be paid by the richest 2% of taxpayers, those earning above £100,000. Those earning less than £40,000 would be better off, while those earning between £40,000 and £100,000 would be £3 a week worse off. The pre-Budget report was immediately seen as the most significant in a generation and likely to define the political battle until the general election, likely in May, 2010.

Labour has ripped up its fiscal rules to launch a spending spree designed to make the recession “shallower and shorter” and restore economic growth in 2010.

For their part, the Conservatives have abandoned their long-standing pledge to match Labour’s spending – gambling on voters preferring spending cuts to tax rises.

Many tax changes were leaked in advance, including the cut in VAT from 17.5% to 15%, which will kick-in on Monday and last for 13 months to the end of 2009. But drinkers and smokers will not benefit, because duty on alcohol and tobacco will be raised by 2.5% and remain at that level when VAT rises again in 2010.

This year’s £120 tax cut for basic rate taxpayers will be made permanent and increased to £145 in April, helping 22m people.

Increases to pensions and child benefits will start three months early, in January. And there will be a one-off payment of £60 from January for single pensioners and £120 for couples.

There was help for homeowners, with an agreement with lenders to wait three months before starting repossession proceedings.

A £200m “mortgage rescue” scheme – to allow those unable to pay bills to switch to renting – will be speeded up to start next week in 60 areas, including Wirral, Knowsley, St Helens and Ellesmere Port and Neston.

And there was a £7bn package to help small businesses. A temporary scheme will offer credit worth £1bn and firms in difficulties will be given longer to pay all their business taxes.

We struggle with the price of running a car

A MOTHER, wife and managing director says she is upset that Alistair Darling is to raise duty on petrol as planned.

Sue Adamson, 44, managing director of Hopscotch childcare centre, St Anne’s Street, Liverpool, and husband, William, 45, have two children, aged 16 and 22.

Her 16-year-old son is a budding footballer who studies at a college in Oswestry, as he plays for the non-league side TMS.

She said: “You really need the car in this day and age. My son plays football in North Wales so ours is an extreme situation in some ways.

“You are encouraged as parents to keep your teenagers in organised clubs, which is right, to make sure they aren’t just playing out. But it can be three or four times a week as well as the school run.

“It costs a lot. As hard working parents we struggle, and could do with help in this respect.”

She also notes that many other parents are coming to Hopscotch to say they’re having trouble keeping up payments and petrol prices figure prominently.

She is positive about the VAT cut for people such as her brother and sister, who run a small business.

Spreading the cost will not combat the problem

ALISTAIR DARLING appeared to throw a lifeline to port-based businesses.

He said companies affected by the recent revamp of the business rating system for ports would be allowed to spread the cost of the new tax bills.

But the statement was last night dismissed by Merseyside port businesses holding out for a complete U-turn.

They are braced for seven-figure demands after the Valuations Office Agency completed a revaluation of ports and began to issue tax bills back-dated to 2005.

David Pendleton, business development director at local ports industry association Mersey Maritime, said Treasury ministers had already been warned spreading the cost would not combat the problem. He said: “If a debt is lying on your books, it doesn’t matter if you have 10 years or 10 days to repay it, you’re still technically bankrupt.”

Andy Nichols, managing director of Thomas Nichols Brown, added: “That absolutely does nothing to alleviate the problem. The problem’s the back dating and the mechanism.”

We needed more action – not promises

ALTHOUGH toxic sub- prime debts are widely blamed for the onset of the credit crunch, Mr Darling including little to please homeowners or the housing market.

He urged lenders to give “three months’ grace” to homeowners in arrears and promised to “work up a detailed” scheme to improve the supply of mortgages by next spring.

Louise Gane, owner of Grosvenor Waterford estate agents, had hoped for more.

She said: “I was disappointed. I thought he could have put some strong measures in force. The property market is crucial to the whole economy – everyone down to those selling beds and wallpaper are affected by it.

“There’s no liquidity in the mortgage market – people are struggling to get the loans, so they’re not buying.

“I was hoping for something really strong and measures to increase the volume of cash, but all we got was a promise.”