Darling plays safe with pre-election budget

Chancellor Alistair Darling has put off painful cuts in public services in favour of taxing higher earners in his pre-election Budget today.

The electorate-friendly Budget makes no change to VAT, capital gains or national insurance contributions. First time buyers will enjoy a stamp duty cut, to be paid for by a 5 per cent stamp duty rate on homes worth £1m or more.

The Budget included a non-controversial rise in duty on beer, wine and spirits of 2%, and on tobacco of 1%. Duty on cider will rise by 10 per cent above inflation, a move aimed at tackling binge drinking.

Darling said a one-off tax on bankers’ bonuses had already raised £2 billion for the Treasury, more than expected. He predicted Government borrowing would stand at £167 billion this year and that the national deficit would fall to £163 billion in 2011, to £131 in 2012, to £89 billion in 2014 and £74 billion by 2015.

Jon Cobbs, Managing Director of Trinity Wealth Management, said he had been “pleasantly surprised” by the Budget but cautioned that it had been written with the approaching general election in mind.

“There are fewer wealthy people than people who are on average or lower wages so I think it’s more about winning votes. It was never going to be particularly punitive,” he said.

“Still, I was pleasantly surprised because I thought the Government would go much further, but they didn’t. There’s no change to things like capital gains tax or pensions at the higher end, so overall it doesn’t seem to have too much of a sting in its tail. I think we got off lightly.”

He added that the next Government’s Budget would be the real decider in terms of the cuts necessary to cut Britain’s huge deficit.

“The question on everyone’s mind is how different this Budget will be to the first Budget after the next election. That’s the one, because this is all about votes and no one is going to make any foul tasting medicine at this point.

“We’ve still got a £176 billion deficit. Someone’s got to pay for that and it’s likely to be businesses and individuals. It’s going to be fiscal.”

Eoin Hamill, Research and Policy Officer for Credit Action, said it was a “very political” Budget that did not include many concrete measures on reducing the national deficit.

He welcomed plans to enable everyone to have a basic bank account, calling them a “step in the right direction” for the financially excluded. He urged the Government to follow up on its pledge by making sure the people who needed the accounts could access them.

“There are a lot of basic bank accounts out there but people just don’t know how to use them. Just making them available is a good step but we still need to see greater support to help people become better customers for the banks and more financially included. At the end of the day, a basic account is still basic, so there is a need for more access to lending and more support for financially excluded people,” he said.

Mr Hamill welcomed an increase in the tax-free ISA allowance to £10,200 in line with inflation, saying it would encourage people to save and be more prudent in their spending.

He added, however, that people would have to wait until the next Budget to see what real changes would be made.

“No specific cuts have been announced, there are no huge cuts in national spending. It’s just very political and internationally people have not been that impressed by it either.

“If it is going to be a Tory Government there is going to be a new Budget anyway so a lot of these issues may be rescinded.

“It was certainly a politically wise Budget, with not too much in there to offend people, particularly the electorate.”