Darling hits back on 'bad news budget'

Chancellor Alistair Darling defended his first budget today, insisting it provided help to people facing difficult times.

Drinkers and drivers were hit hardest in yesterday's package as he clobbered "gas-guzzling" cars and hiked duty on booze.

Shadow chancellor George Osborne branded it a "bad news Budget" which "kicked Britain's families when they're down".

"The cost of living is already rising fast and the Government has added to it with stealth taxes on cars and alcohol, when we believe that these kinds of taxes should be offset with tax reductions elsewhere," he said.

But Mr Darling dismissed this assessment.

"We are trying to help people who are facing difficulties at the moment," he told BBC1's Breakfast News.

He also defended the new 'showroom tax' for bigger cars, saying the measure would enable people to make "better choices" when buying new cars.

"I'm also trying in the longer term ... to take steps now to deal with problems we know we are going to face in the future," he said.

Mr Darling has been accused by some political opponents and economic experts of being over-optimistic in his assessment of the UK's prospects as the world faces troubled economic times.

But he insisted his latest forecasts were "broadly in line" with independent predictions.

And he reiterated his claim that thanks to low unemployment and inflation, the UK was well placed to face any economic storm.

Mr Darling slashed growth forecasts yesterday and admitted that public borrowing would soar to £43 billion to support the economy through the expected slowdown.

But he insisted he could still meet the tax and spending rules set by Gordon Brown when he was chancellor - although his figures depend on a strong economic bounce-back in 2009.

The independent Institute for Fiscal Studies said Mr Darling had delivered his package "with fingers crossed".

The need to keep the economy moving as consumer demand slows meant that motorists were at least spared the planned 2p increase in fuel duty, due on April 1, which has now been put back to the autumn.

However, the announcement - apparently the result of a last minute climbdown in the face of lobbying by business and motoring organisations - infuriated environmentalists who had been promised the "greenest" Budget on record.

With severely limited room to manoeuvre, the Chancellor offered some cheer to Labour MPs by offering a £950 million-a-year package of benefit changes to take 250,000 more children out of poverty.

There was also a one-off increase in the winter fuel allowance for pensioners, rising from £200 to £250 for the over 60s and from £300 to £400 for the over 80s.

Drinkers, however, will feel the pain of a hike in alcohol duties of 6 per cent above inflation from midnight on Sunday - putting 4p on a pint of beer, 3p on a litre of cider, 14p on a bottle of wine and 55p on a bottle of spirits.

The rate will continue to rise by 2 per cent above inflation in future years.

The other "sin tax" - tobacco duty - will also go up with an extra 11p on a packet of 20 cigarettes and 4p on five cigars.

A new vehicle excise duty regime will take effect from April 2009 with a range of banded rates, from nothing for the cleanest vehicles to £440 for the most polluting.

And from April 2010, there will be a new first year rate for new cars - the so-called showroom tax - ranging from nothing to £950, again depending on carbon emission levels.

The changes formed part of a "green" package, which also included the threat of legislation to impose a charge on disposable plastic bags if supermarkets fail to curb their use.

As expected, Mr Darling downgraded his forecast for economic growth this year to 1.75 per cent to 2.25 per cent, compared to the 2 per cent to 2.5 per cent he was predicting in his Pre-Budget Report (PBR) just five months ago.

At the same time, he announced an immediate easing of the public purse strings allowing borrowing to rise to £43 billion - an increase of £7 billion on his PBR forecast.

Soaring world food and energy prices mean that inflation will also run above the Government's 2 per cent target rate for most of the year.

However, Mr Darling insisted that the economy would be back on track by 2009, with growth of 2.25 to 2.75 per cent, rising to 2.5 to 3 per cent in 2010, while borrowing would come down sharply, dropping to £23 billion by 2012-13.

He said the recovery would enable him to meet his rules of balancing the budget over the course of economic cycle while keeping borrowing below 40 per cent of national income.

But the IFS responded: "If the downturn is deeper than expected, if he is over-optimistic about the underlying strength of tax revenues, or if political pressure requires further giveaways, then Mr Darling or his successor may have to inflict more pain."

Mr Darling told BBC Radio 4's Today programme it was "not surprising" that borrowing was forecast to rise given the global impact of the sub-prime mortgage crisis in the US.

"When you get this period of uncertainty the right thing to do is to allow your tax policy and your fiscal policy to support the economy; that's what we're doing," he said.

"I am taking a cautious view. I said yesterday, at some length, that we are going through pretty uncertain times, but I believe our projections are in line with what people are saying and most people expect our economy to grow."

Dismissing criticism of his assumption that Britain would weather the economic turbulence, he said: "You can take a different view - you can take an entirely more pessimistic view; I don't think that's the right thing to do.

"I think it is right to continue to take the decisions in the long-term interests of this country and if you look at our position now, it is infinitely better than it was 10 or 15 year ago or even 20 year ago when we had, without labouring the point, the very big recessions."

Delaying the fuel duty increase was part of that action, he said.

Asked if he wished he had more room to manoeuvre, he said: "We are where we are; you can only deal with the economy as you find it."

He said the booze tax hike was "a fair and a reasonable thing to do".

"If you look at the price of a bottle of wine now, it would have cost you more to buy it 10 year ago, if you go into a supermarket," he said.

Tory plans to raise duty on alcopops to fund tax cuts on other types of alcohol would push young binge drinkers to other types of drink and be in breach of EU laws, he said.