Wednesday, 9 December 2009

Pre-budget report, December 2009

So that was the Pre-Budget report! Vince Cable called it a budget for Bingo and Boilers and bad for everything else; George Osborne said the Chancellor was attempting the physically impossible: ring-fencing a black hole.

Yes, bingo tax is down from 22% to 20% - I didn’t even know there was a bingo tax, just shows, this government has taxed everything. And there will be a boiler scrappage scheme to build on the success of cash-for-clunkers . The state pension will rise 2.5%, which could be a real-terms increase; an extra half a million kids will get free school meals, and that’s the end of the nice bits.

The VAT cut and the stamp duty holiday will both be reversed on the 1st of January next year, ie, in three weeks’ time. Everyone earning over £20K will be paying an extra 0.5% on their national insurance from April 2011.

The Chancellor has revised his forecast of the depth of the recession. Back in April he thought the UK economy would shrink 3.5% this year – now he reckons it will be more like 4.75%. Strangely he has only increased his borrowing estimate by £3bn to £178bn, despite the fact we can all add up and see that it’s more likely to be around £200bn. The good news is he only wants to borrow £176bn in 2010 and £140bn in 2011, falling to £96bn in 2013. Back in April he told us those numbers would be £173bn in 2010, £140bn in 2011, £118bn in 2012. So basically: denial all around here.

The truth is of course he won’t be around after May 2010 so he can say anything he likes; it’s not going to happen. At the moment all he is doing is pushing the pain into the future – ie, beyond the election – to preserve as many Labour seats in the House of Commons as possible; hence the few populist measures aimed at Labour voters. He flunked any attempt actually to fix our broken economy.

Perhaps his most popular measure is taxing bankers’ bonuses at 50%. But for banks which are already taxpayer-owned a 100% tax would seem more appropriate. Bob Diamond, CEO of Barclays Capital, £27m bonus this year, was mentioned by name (not by AD though) – it looks like he has been selected as the next whipping boy. I expect Fred “the shred” Goodwin will be relieved his turn is over.

The markets reacted to Alistair Darling’s speech by falling, but not by much, 30 points off the FTSE 100 and sterling lost half a penny against the euro during the course of AD’s presentation.

All in all it was just a holding measure to take us into next year.


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