The mother of all gambles

Best case scenario: it might just work. Worst case: the stimulus flops and the economy stagnates with a huge overhang of debt

My rating: 5.5/10

Keynes was a great man, but he wrote nearly 70 years ago. In his day, there were fixed exchange rates. We still had a massive manufacturing base. There were no credit cards or debit cards. There were no real international financial markets; traders couldn't dump your bonds or your currency at the touch of a button.

It was a different world. It made sense, then, for governments to spend on heavy infrastructure products to stimulate the economy. Nowadays, it just means more debt, leading to higher borrowing costs. The benefits are doubtful. Ask the Japanese. They ended up with national debt at 180% of national GDP, and 15 years of economic stagnation. They had simply followed Keynes' ideas.

Today, any stimulus – the pumping of more money into the economy – will be judged by the international markets. Currency traders have already passed judgment by dumping sterling against the dollar. One pound sterling is now lower than $1.5. That's because our government has basically tried to print money to get us out of trouble.

Meanwhile, the international market will also pass judgment on our government debt. If you are a borrower, the more you borrow, the more it costs. If you are a good credit you might have to pay an interest of 5%, a bad credit pays 10% for the same loan. This is what subprime was all about.

Our fiscal position is in danger of making us a subprime country.

As for the specifics, Darling's "sting the rich" 45% top tax rate was inevitable. Yes, it marks the end of the New Labour. It doesn't really help the Treasury that much; you could probably pick up a couple of billion sterling. The real fat cats, of course, will dodge the tax by declaring less of their UK income, or simply by locating themselves abroad. They'll still be able to spend 90 days a year here. They will still come to our restaurants, or go to the Chelsea Flower Show, without paying the taxman.

I don't see how a lowering of VAT helps much, in terms of stimulus. VAT is a form of sales tax. It gets paid when you spend. A stimulus should put money in your pocket before you have actually spent the money. A cut in income tax does this. Cutting VAT is a classic case of shutting the stable door, when the horse has already galloped a couple of furlongs down the road.

It was a good idea to signal that we'll all have to pay once the spending binge is done. But to increase National Insurance seems eccentric, to put it mildly. Businesses, especially small businesses, will lead the way out of the coming recession. An increase in payroll taxes in a couple of years doesn't seem like a good way to consolidate any economic growth we might be able to enjoy in the near future.

Given Darling's ideology, this was a competent presentation. But the risk is real. It could saddle us with yet more debt, while not doing much at all to stimulate the economy. And putting up national insurance in 2011 isn't smart at all.