British chancellor introduces his budget with one eye on coming election

13:20, March 25, 2010      

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By Peter Barker

British Chancellor of the Exchequer Alistair Darling unveiled his budget on Wednesday, with one eye on economic recovery and the other on the coming election which may be only weeks away.

For Chancellor Darling this was a mission hedged around with potential pitfalls.

Had he attempted to buy votes at the coming election, which must be held before the first week in June and which looks likely to be held on May 6, he would have been condemned not only by the opposition parties in parliament but by the international money markets, credit agencies and investors as well as many economists.

Also, with public debt at record levels, he doesn't really have any money to throw around.

The chancellor's budget announcement was far from devoid of electioneering, but Darling saw his principal duty as safeguarding economic recovery.

In his midday speech to the House of Commons, Darling said: " The aim of this budget is to secure recovery, to tackle borrowing, and to invest in the industrial future. Having come through global recession this budget will see us on the road to recovery."

Darling announced a 2.5-billion-pound (about 3.8 billion U.S. dollars) scheme to encourage investment from small and medium- sized businesses, many of which will have to pay no business rates next year. In addition he announced a new growth capital fund to provide capital for fast-growing firms.

He also used the state's position as majority shareholder in two high street banks, the Royal Bank of Scotland and Lloyds TSB, to say that they would provide 94 billion pounds (about 144 billion U.S. dollars) of new business loans, half of them to small and medium businesses.

Since the chancellor made his Pre-Budget Report (PBR) in early December last year, the British economy has finally moved out of recession and into growth. Initial GDP figures released this year showed a 0.1 percent rise for the final quarter of 2009, later revised up to 0.3 percent.

Although Britain is the final G20 nation to move out of recession, the growth was very welcome news to Darling, as were the lower-than-expected unemployment figures revealed earlier this month.

Both contributed to Darling being able to forecast in the budget that the public sector borrowing requirement (PSBR) would be 11 billion pounds (about 16.8 billion U.S. dollars) lower, at 167 billion pounds (about 246.6 billion U.S. dollars), for this year than predicted in the PBR, with knock-on effects in future years' figures. He vowed to hold to the pledge made in the PBR to halve the debt within four years.

Darling was also able to reveal that the popular tax on bankers ' bonuses, embraced by the public in the wake of the financial crisis which many blame on bankers but the source of bitter moaning from the bankers themselves, has also raised more than he predicted when he announced it in December's PBR. The tax is likely to bring in two billion pounds, said Darling, which is more than twice his December prediction.

The chancellor was also able to reveal that the bail-out program to save banks and rescue the financial sector had earned eight billion pounds in fees.

Darling held to the growth forecasts made in the PBR for 2010 of 1-1.5 percent, but revised down his figure for 2011 growth to 3- 3.5 per cent from 3.75 percent, in line with Bank of England forecasts.

Swipe at the rich

In a carefully crafted political move, Darling said he would help first time buyers of homes by raising the threshold on stamp duty (a tax paid on the sale price of a home by the buyer) by 125, 000 pounds (about 219,000 U.S. dollars) to 250,000 pounds (about 382,500 U.S. dollars). The average price of a British house is about 200,000 (about 306,000 U.S. dollars) pounds. In a swipe at the rich, Darling said he would fund this tax break by increasing stamp duty to 5 percent on sales of homes costing more than 1 million pounds.

The chancellor continued his pursuit of the rich with the ending of some personal tax allowances for those with an income over 150,000 pounds (about 229,500 U.S. dollars) and of the winding down of allowances for those over 100,000 pounds (about 153,000 U.S. dollars). He also unveiled restrictions on tax relief for pensions on those with incomes over 130,000 pounds (about 198, 900 U.S. dollars) a year

Darling justified his attack on the incomes of the wealthy. "We have not raised these taxes out of dogma or ideology. We are determined to ensure our overall tax regime remains competitive. But I believe those who have benefited the most from the strong growth in incomes in past years should now pay their fair share of tax."

In another move to squeeze the wealthy, Darling announced that the threshold above which inheritance tax was payable would be held at 325,000 pounds (about 497,250 U.S. dollars) for four years, a move which effectively means an extension of the tax to more people.

Westminster farewell

Ironically, despite all the noise in Westminster and the importance of the figures and forecasts, many of the policies announced will not have time to be passed in this parliament and may not be implemented.

The ruling Labour party is currently trailing the leading opposition party, the Conservatives, by four points, according to a poll on Tuesday in "The Sun" national daily newspaper, and by five points in a poll for the national daily "The Mirror", also on Tuesday.

This may not be enough to put David Cameron's Conservatives into Downing Street without a coalition with one or several of the minor parties. It could also allow Prime Minister Gordon Brown to stay in power, if he could form a coalition to support Labour after the election.

Given that Darling has displeased Brown to the extent that the prime minister has tried to replace him with one of his staunch supporters, it is highly unlikely that he will remain as chancellor after the election.

After the chancellor had spoken, it was over to Cameron, the leader of the opposition, to make a reply. He too had an eye on the election, and sought to write a stinging epitaph on Labour's 13 years in office.

Cameron said that PSBR had doubled and would double again. "The chancellor spoke for an hour but he could have done it all in a sentence: Labour have made a complete mess of the British economy and they are doing nothing to clean it up.

"Like every Labour government before them, they have run out of money and they are leaving it to the next Conservative government to clean up the mess."

Source: Xinhua
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