The Budget

Written by Colin Breed on Tue 21st Apr 2009

Parliament returns from Easter recess this week and it is straight down to business with the Budget, which the Government has left to the latest possible date in the hope that some of its financial crisis measures will have been demonstrated as working. At the time of writing, precise facts are not known, but much speculation abounds as to what the Government will propose to free up the banking system and stimulate stagnant growth without creating an unsustainable future burden of borrowing. It would appear long term financial stability is of less importance than short term political survival. With this is mind, I do not expect significant future plans but a few token gestures, such as "green" measures to raise revenue under the guise of environmental protection, which in reality will have more to do with filling the ever growing black hole of public debt than achieving our 2020 carbon targets. Real revenue will be delayed until 2010 and beyond, after the next election!!

It must be remembered that the Labour administration has presided over perhaps the best years for the economy in a while - the Governor of the Bank of England called it the "nice" decade, an acronym for the 'non-inflationary consistently expanding' decade. However, the decline in macroeconomic volatility did not abolish boom and bust which we are once again facing. The economic cycle has turned with a vengeance.

The 2009 Budget therefore, provides the Chancellor of the Exchequer, Alistair Darling, with a rather difficult job satisfying the markets and demonstrating an appetite to make the tough decisions that everyone agrees are necessary, whilst at the same time recognising that this Budget, and its effects on the electorate, will be influential in the outcome of the next General Election. This is not an easy tightrope on which to balance.

Of all the speculation, I think the major priorities must be to keep unemployment from rising further in 2009 and to assist with the reduction in house repossessions. It is essential therefore to offer quick and direct assistance to small businesses and offering further support to home owners. Changes to the tax system would help as well. The Liberal Democrats recently proposed that people should only start paying tax at £10,000 per year, with all those earning under £100,000 per year paying less - the equivalent of £705 back in every taxpayers pocket - to be funded through closing tax loopholes and cracking down on tax avoidance. Greater spending power and public confidence will more likely create better conditions for the long awaited "green shoots" of recovery.

Whatever happens, the next administration will have to tackle the medium/long term issues of servicing and reducing the enormous public debt which will have been created. A massive challenge awaits 2010's Chancellor of the Exchequer.