Temporary tax cuts make a lot of sense in terms of stimulating demand - provided that infrastructure spending is ramped up meanwhile, as generating additional employment through public spending will probably be more effective in getting us through an economic slump than tax measures. A VAT cut is reasonably sensible, although some of the commodities that the poorest people are most likely to buy - e.g. food - are zero-rated, and so will actually be relatively more expensive relative to other goods than they are at the moment.
The proposal for a 45% income tax rate after the next election to help (a little bit) towards balancing the government books in the long run is very welcome, and perhaps marks the death of the faux-Tory mutant known as 'New Labour' and its replacement with 'Newer Labour' - which seems to be a closer relative of Old Labour than its immediate predecessor. Which is no bad thing. The extinction of the legacy of Tony Blair (and of Gordon Brown's own past self) is limited, but essential.
But the £12 billion fiscal stimulus from the VAT cut, and the other smaller measures on the table, are really pretty small beer. They'll help a bit but we'll need a lot more in either higher spending or lower tax if we're gonna get out of a major slump without experiencing the kind of mass unemployment that wrecked huge swathes of the economy in the 1980s.
I still don't know if the government has really grasped the gravity of the situation. Its growth projections for 2010 are wildly optimistic, and out of line with all independent forecasts. In all likelihood the economy will still be contracting in early 2010, at least. But I guess these numbers can always be revised later, and the stimulus can be boosted in the March Budget if need be.
The borrowing figures are historically high, but then it's a historically big recession, and it's gonna hit the UK harder than most because we rely a lot on financial services. This isn't ideal but the government is making the best of a bad job. The Tory plan of just relying on automatic fiscal stabilisers and funding tax cuts through cutting spending isn't a stimulus package; it's just more of the same crap they were pushing between 1997 and 2005. Osborne was shit in the opposition post-PBR response. The Tories must be crapping themselves now... if polls this week show Labour ahead in the polls (or at least even pegging) election fever is gonna mount. And this time, Brown would be a fool to bottle out.
So it was a 'small action' but with scope for more down the line if need be. However, Vincent Cable hit the nail on the head pretty well on Channel 4 News tonight (as so often - why is this man not leading the Lib Dems? They would probably be at 30% or more in the polls if he was.) The main priority is to get banks lending to businesses - not necessarily at 2007 levels (that may be impossible) but at much higher levels than what's happening at the moment, which is feeble. If the govt needs to go for full nationalisation of a major bank or two to do that, then go for it. A modest fiscal stimulus ain't gonna do jack if the entire credit system remains seized up despite the re-capitalisation of Lloyds TSB/HBOS/RBS.