PPS News & Blog

No escape to Belize!

The Chancellor today stood up for what will most certainly be his last Budget pre-election and most likely to be his last Budget ever (even if Labour were to defy all odds and actually win a majority the chances of Darling remaining Brown’s preferred partner are slim).  As ever, Harriet Harman sat as the nodding dog in the foreground whilst the Chancellor spoke at length on policy aspirations and only fleetingly on actual economic forecasting – although this was always going to be about the election above and beyond anything else.  Certainly, any talk of public sector spending cuts was notably absent – less jam tomorrow than P45s tomorrow…  (although the small print in the supplementary documentation makes the intentions a little clearer). 

Pre-Budget, most people were speculating that there was little wriggle room for the Government – even coming in under initial borrowing forecasts would still be leaving a gaping hole of around £170bn rather than £176bn – hardly affording a spending bonanza.  There was also the question of whether or not anything announced would actually be worth the paper it was written on with an election coming so soon.  In the end, this was a Budget to set out a stability agenda, creating a contrast between this and the Conservative party.  This is all about drawing the battle lines. 

Admittedly not the most important measure but certainly the most entertaining – well, for those who find the Budget both entertaining and amusing…  The Government announced a clampdown on people avoiding and evading tax – measures will bring in additional revenue of £0.5bn this year.  The Government will sign tax information exchange agreements with three additional countries – Dominica, Grenada and Belize to come into effect within the next few days (take that Ashcroft!!)

The core theme was compare and contrast to the Conservative assertions and the track record of previous Conservative Governments – the hits kept on coming with references to unemployment, repossessions, Conservative plans to sell off bank shares and promote a unilateral approach to banking reform, in all, an hour long attempt to undermine all of the policies being put forward by the Conservatives.  At the outset, Darling downgraded the forecast for growth to come into line with the forecast from the Bank of England – likely to win more credit in the City by providing more realistic targets and perhaps suggesting a loosening of the iron grip of Gordon Brown.

In addition, the Government has clearly identified small and medium businesses as the key beneficiaries from any new budgetary measures – potentially a good electoral strategy which could boost both the economy and provide votes on an individual basis from the host of small business men and women and entrepreneurs.  The Chancellor highlighted that tax receipts have been better than expected in part due to the bankers bonus tax making more than £2bn, double initial forecasts- coming back to the key theme that labour can manage a steady and careful recovery and seeking to suggest that the Conservatives will destabilise this.  The majority of this is intended to be redistributed to small businesses and, to an extent, individuals through tax credits etc.

Darling made it very clear that the Government is not intending dramatic cuts at this stage, seeing this as a risk which will undermine the entire recovery.  However, plans to reduce borrowing over the next four years will be met through tax, public spending cuts and economic growth.  This gave the Chancellor the ability to promote ideas and commitments without the need to commit to direct cuts at this stage – elections, elections, elections…

In a clear swipe at the Conservatives plans to sell off bank shares to tax payers, the Chancellor claimed that the banking sector is returning steadily to normality.  The Government will dispense of its own shares in a way which ‘maximises value to the taxpayer’ and recoups all money.  Added to this, the Chancellor focused on reform of banking structures being ’internationally coordinated claiming that going it alone would cost thousands of jobs’ - again,  a swipe to the Conservatives who have said that reform will take place unilaterally if necessary.  One of many repeated attempts by the Chancellor to demonstrate that the Conservatives are not capable of understanding and managing this process.

The Headlines:

Tax and Duties:

• Alcohol duty to be increased by 2% above inflation with cider being brought into line with higher increases; tobacco to be increased by 1% above inflation from today and further increases through to 2014
• Fuel duty rises to be staggered across April, October and January – an attempt to pacify the motoring and business lobby?
• Inheritance tax threshold to be frozen for a further four years to help fund care for the elderly – further announcements to follow
• Following the announcements in the PBR last year, no further tax increases were announced (read my lips, no new taxes…??)

Small Business:

• £2.5bn one-off growth package to support small business investment – paid for by switching spending from within existing allocations and proceeds from bank bonuses (not new money but new emphasis
• Banks to provide increased new loans to SMEs to be set out in further detail by the Treasury through a framework to be agreed under the terms of bank loan repayments.
• The Government is also setting up a new service to fast track credit complaints from SMEs and help reduce bureaucracy – although it is not clear how setting up another body will reduce bureaucracy.  What it will do is signal the commitment of the Government to supporting small businesses
• Assistance to businesses by a cut in business rates for one year to October for small businesses as well as off-setting for capital investments and doubling of tax relief for entrepreneurs.  Capital Gains Tax to be maintained at the current level

Housing:

• Mortgage relief scheme to be extended
• Much trailed but now confirmed, the Stamp Duty threshold for first-time buyers is to be doubled to £250,000 from midnight tonight for the next two years funded by an increase in SDLT to 5% for properties over £1m representing about 1% of house sales.  This is likely to be controversial – popular in some areas (particularly core Labour voting areas) and less popular in some of the safer Conservative shires.

Individuals and Families:

• ISA limits to be extended to £10,200 and to be increased annually in line with inflation
• Potential scrapping of compulsory retirement age and commitments to training for those under 24 years old
• Reform, of the benefits system to make work pay – particularly housing benefit which is likely to be a response to the frequent headlines on large families being given palatial houses in expensive areas at the expense of the tax payer.  Future calculations will exclude the most expensive houses in the area.
• Child tax credits to be increased to all children regardless of family circumstances – another swipe at the Conservatives and there nuclear family idyll…

Infrastructure:

• Further announcements on pilot TIFs programmes with £120m to be made available for the introduction of an Accelerated Development Zone (ADZ) pilot programme in 2011-12.   Selected authorities will receive capital grant funding to help support projects that deliver key infrastructure and commercial development to unlock growth and to further understand the case for introducing Tax Increment Financing.  
• £100m to pay for improvements to local roads damaged by bad weather conditions plus £280m for main trunk road improvements (likely to be welcomed by drivers and cyclists alike who are currently spending a fortune on repairing suspension frames and wheels damaged by potholes…) – not likely to go down well with the green lobby but balanced by reiterating commitment to HS2 and the announcement of the £2bn investment bank.
• The Chancellor highlighted the need to secure energy supplies and replace nuclear power stations as well as investing in renewable energy.  
• Infrastructure UK  is publishing a new strategy setting out a route map and structure for investment.  As previously trailed, the Government  is  setting up a £2bn investment bank with funding from assets including the Channel Tunnel Rail Link and the rest from the private sector.  Increased focus on off-shore wind turbines.
• Digital economy to be supported as the next industrial revolution seemingly
• Continued sale of some of the Government’s assets – some would say a fire sale – with confirmation of the Tote and the Dartford Crossing amongst other assets likely to be going under the hammer…

The Conservatives are actually left with little opportunities to attack – especially given that several of the policies announced are actually Conservative policies originally.  Cameron and Osborne can point this out but it doesn’t really help them as they’re not in a position to implement at this stage.  The details of the spending plans need to be pored over in some more detail – as with all budgets, there is usually a significant difference between the initial view and the considered view.  In particular, there appear to be discrepancies between the promised assistance to certain social sectors and apparent cuts/efficiency savings in departmental budgets – possibly cuts by the back door??

What can we say other than, it’s six weeks before an election and ’It’s the Economy, Stupid…’