Darling promises IT cuts, years of pain

Chancellor of the Exchequer Alistair Darling has promised spending cuts in order to try and rein in rampant government spending, helped by a windfall tax on bankers' bonuses.

In his last pre-budget report before the election, Darling promised £5bn in cuts from technology projects, outsourcing prison management and reforming legal aid. He blurted out plans to crimp the NHS' IT upgrade by £600m at the weekend, leaving us to ponder where the other £4.5bn of cuts are likely to come from.

The Chancellor needs to at least outline cuts because capital markets are rapidly losing confidence in the country's ability to pay back its enormous debts.

But he is also fearful of pulling the plug on the first signs of economic recovery by slashing spending too quickly.

Darling claimed government action had already reduced the impact of the recession on British families. He said investment in technology and bio-tech industries would help the recovery and avoid a lost generation of unemployed young people. Corporate income from UK patents will be taxed at ten per cent.

The Chancellor said global confidence was growing but remained fragile, so still needed supporting by government. But he confirmed that the temporary VAT cuts made last year will end on 1 January and go back to 17.5 per cent.

Smaller firms will see the tax deferment scheme extended for at least another year.

He expects unemployment to continue to grow for some time, but the guarantee of work or training for young people will also be extended for another year.

Pensioners get a 2.5 per cent rise in their state pension from April next year.

Darling is sticking with predictions of a return to growth in the fourth quarter, not enough to offset a 4.75 per cent shrinking of the UK economy this year, and 3.5 per cent growth in 2011.

The pre-Budget report got a tinge of green from a boiler scrappage scheme, like the cash-for-bangers money, for 125,000 old boilers.

Income from selling green electricity back to the National Grid will be tax-free.

So where is all this money coming from?

He has cut the expected cost of the bank bailout from £50bn to £10bn. He confirmed the 50p per landline tax to fund next generation broadband networks and better rural access.

Public borrowing is higher than expected at £178bn this year, but will dip slightly to £176bn next year.

After last year's £80bn losses in the banking sector, Darling said any that any institutions which insists on paying substantial bonuses would face a 50 per cent tax on payments of over £25,000, payable by the bank. He expects this to bring in £500m.

And there are those £5bn of cuts. ®