Fishburn Hedges

24.03.2010

As the Government faces its own political mortality and Alistair Darling ponders moving out of No 11 in just six weeks, it’s not surprising today’s Budget was a political event. 

Although the Chancellor was able to define some political dividing lines for the forthcoming campaign, this was no giveaway Budget. 

Instead, the Chancellor’s pitch to the nation is that the Government made the right calls during the global economic crisis and that this was a workman-like Budget to ‘secure the recovery’ and avoid tipping the country back into recession.

The Chancellor pointed to lower than expected borrowing of only £167bn in 2009/10, due to higher than expected tax receipts and lower levels of unemployment, as evidence that the Government’s active approach is working and cautioned against premature cuts which could derail the economy.

It was notable that the build-up to this Budget was characterised by less squabbling between No 10 and No 11 than in recent years, but the Chancellor resisted pressure from some of his colleagues for too many pre-election sweeteners.

The dire national finances allowed for few real surprises.  Public spending announcements were highly targeted and in part financed through the eye-catching tax on bankers’ bonuses - which has yielded more than twice the amount forecast - and the previously announced changes to the top rate of income tax.

Public spending

The Chancellor confirmed that the next Spending Review will be the “toughest for decades” as the Government sets out to halve the deficit over the next four years. 

Further details about the Government’s efficiency programme in the run-up to the Spending Review were published alongside the Budget, but not surprisingly today wasn’t about the painful choices on public expenditure – these have again been postponed until after the election. 

Dividing lines

Darling’s central messages around promoting growth were accompanied by a flourish of political rhetoric that nodded towards the ‘fairness’ slogan Labour has chosen for its election campaign.

A number of measures pointed towards the dividing lines ahead of the election manifesto launches, in particular:

- Housing – helping first time buyer on properties under £250k, paid for by increased stamp duty on homes over £1 million

- Social care for the elderly – improvements funded by a freeze on inheritance tax adjustments for inflation

- Bank bonus tax – announced at the Pre Budget Report, but the tax has been earmarked to provide the revenues for skills training and higher/further education places for young people

The message was clear, those that benefited most during the boom were going to have to take more of the pain – something that Labour strategists believe should play well on the doorsteps.

Opposition response

David Cameron’s response focused on reiterating the Conservatives’ line of attack on debt, waste, tax and a Government that has run out of ideas to the point that it is stealing Conservative policy wholesale (e.g. stamp duty). 

These lines of attack are already well established but expect them to be hammered home every day from now until May 6. 

The Conservatives have also posted the full Budget on their website and are encouraging their activist base and anyone with an interest to go through the small-print and identify the hidden bad news / stealth measures.  A similar ‘crowd-sourcing’ approach was successfully used by the Guardian over MP’s expenses and Tony Blair’s finances.

Nick Clegg accused both Labour and the Conservatives of being in denial about forthcoming spending cuts.

Key points

Borrowing, spending and growth

- Borrowing this year is forecast to be £167 billion, £11 billion lower than expected

- The Government is sticking with its current levels of spending, which will amount to a real increase of 2% in spending over the next financial year

- Growth of the UK economy is expected to match Darling’s earlier prediction of 1-1.25% in 2009-10, with a slightly downgraded level of 3-3.5% for 2010-11 in line with Bank of England predictions

Government efficiency savings

- Up to £11 billion will be saved through the ‘Smart Government’ scheme which includes cutting the salaries of top civil servants and moving one-third of civil servants outside of London

- Departments will today publish details of how they will make these savings from 2011 

Housing

- Stamp duty for first-time buyers to be scrapped for homes valued below £250,000, to be paid for by an increase to 5% for residential property sales over £1 million

Banks

- State-owned banks RBS and Lloyds will be made to provide £94 billion in small business loans. A ‘Small Business Credit Adjudicator’ will also be established to ensure any decisions made to deny businesses credit are properly examined

- All UK citizens will be legally entitled to a basic bank account

Small businesses

- There will be a one year business rate cut from October, and a freeze in capital gains tax rates

- UK Finance for Growth, a new body, will coordinate £4 billion in support for small businesses to boost skills and innovation. The investment allowance for small firms will double to £100,000

Taxes

- The inheritance tax threshold will be frozen for at least four years to pay for improvements in social care

- The 3p increase on fuel duty will be staged between April 2010 and January 2011, though there will be an increase in wine, beer, spirit, cider and tobacco duties

Young people

- The guarantee of work or training for those under 24 unemployed for longer than six months will be extended to March 2012

- Funding will be provided for 20,000 new university places in STEM subjects

Older people

- The government is ‘consulting’ on making changes to the Default Retirement Age of 65 to ensure that those who wish to work longer are able to do so

Infrastructure

- Infrastructure UK will publish its route-map for investment for the coming year today. Alongside this the government will establish a ‘Green Investment Bank’ with £2 billion in equity for green transport and renewable energy