Chancellor Alistair Darling today presented what is probably his last budget speech. It must be noted that this was not a “real” budget since the Conservatives have promised to quickly produce their own budget if they win the election and should Labour win they will almost certainly wish to “supplement” what is continued in the budget. Instead the budget should be seen as part of setting out Labour’s stall for the next election.
Some weeks ago I predicted that the Chancellor would address the following themes:-
1. The general state of the UK economy
2. UK public finances and changes to taxation and public spending
3. Supporting businesses
4. Helping people in need
5. Improving public services
How did I do? Well I think I hit the button on four out of five.
Regarding the UK economy, the Chancellor started by recognising the economic problems faced by the UK as part of the global recession. The Government did not accept any blame for this situation preferring to blame financial problems in the USA but he insisted that the Government had made all the right decisions to protect the economy while claiming the Conservatives were prepared to do nothing. He then insisted that the economy was now improving quoting economic growth, reducing unemployment and increasing tax receipts. However, he also noted that the economy was still fragile and care had to be taken in cutting public expenditure too quickly which could damage the economy.
The Chancellor spent some time talking about the UK public finances. Better than expected tax revenues had meant a smaller than expected borrowing requirement. However, even in 2014/15 the Government still expects to borrow a staggering £74bn and this may not be enough to satisfy the financial markets that the UK public finances are under control. In his response to the budget David Cameron repeatedly hammered this point. Changes in taxation were not a huge issue in this budget. He froze inheritance tax, changed thresholds on stamp duty and announced improved measures to prevent tax avoidance. There were the usual increases in alcohol and tobacco duty but all of a sudden he announced there were no more tax changes. However, this situation will probably change after the election – whoever wins. The chancellor also provided some detail about how a package of £20bn efficiency savings would be achieved but no real detail on the major cuts in public sector spending needed after the election.
Mr Darling spent a lot of time outlining measures that would support and improve the UK economy and UK businesses. There are changes to corporation tax to encourage investment and various funds are to be created to support UK businesses including one that would promote the development of green technologies.
Also he promised support to certain groups in society - measures which would get support from Labour’s core vote. Examples here included changes in child tax credit, help for first time house buyers and people who have been made unemployed and who have mortgage repayment problems/
Mr Darling appeared to say little about improvements in public services other than to promise more money to undertake repairs on motorways and other roads.
This was a budget strong on politics but light on economics and finance. Overall Mr Darling seemed to be trying to achieve three main objectives. Firstly to portray to the voters an aura of economic competence and a Government that has steered the economic ship through stormy waters. However the ship is not yet in port and he emphasized care is needed. Secondly to differentiate Labour from the Conservatives on key policy issues such as targeted support for key industries not an across the board reduction in corporate taxation. Thirdly to introduce measures that will appeal to Labour’s core vote such as increased stamp duty on properties over £1million and enhanced tax avoidance measures. However, the size of the public sector borrowing requirement is something that will be repeatedly thrown at the Government throughout the election campaign. David Cameron made the wounding charge that all Labour governments leave office leaving the country in a financial mess.