THE BUDGET - A Missed Opportunity
After a 50 minute speech that was less inspiring than an accountancy lecture to first term undergraduates the chancellor sat down and the real accounting began. Since then the experts have had their calculators out working out exactly what his pronouncements meant.
I’ve been trawling through hundreds of e-mails from various groups with their responses. There seems to have been a sharp intake of breath from just about everyone over the astounding debt figures and the astronomical borrowing forecasts Mr Darling announced – but there’s also a feeling that maybe, just maybe, the Government is beginning to understand the extent of the problem. However most experts feel Mr Darling is living on a different planet to the rest of us if he thinks that the UK economy is going to recover as quickly, and to the extent, he confidently predicted.
Moneyagonyaunt expert Justin Urquhart Stewart of Seven Investment Management e-mailed me straight after the speech to say: “Budget! I’ve known smarter budgies! His growth figures are barking - 3.5% growth by 2011! Cut the frippery – just look at the size of the borrowings! He’s given no clear idea of how the debt can be repaid."
Our expert John Eaton of Lupton Fawcett solicitors in Leeds agrees: “Budget? He’s Fudged it! “The REAL problem facing us all, is the crippling and unprecedented level of debt, the repayment of which the Chancellor is tackling by a combination of lengthening the repayment period and postulating some hopeless and wildly optimistic growth assumptions which simply will not occur. He has completely failed to grasp the most important nettle of all - the crippling and unsustainable level of public expenditure.”
Justin U S also says “He (Mr Darling) needs to get the banks lending and houses being bought and sold. He should have got rid of all house stamp duty for 2 years and other spending will follow. Find me someone who doesn’t buy at least a carpet when they move house!”
Peter Bolton King, chief executive of the National Association of Estate Agents, agrees. He says:
“The housing market is the engine of the UK economy and it is likely that this Budget will be remembered as largely ineffectual given the magnitude of the problem.
“There is very little here for first time buyers, who need more encouragement to climb onto the property ladder – which will get everything moving.
“Mr Darling has used a water pistol to try to put out a fire.”
On the extension of the £175,000 Stamp Duty Land Tax threshold, Mr Bolton King said:
“Merely extending the stamp duty threshold is disappointing. Mr Darling had a real opportunity to get rid of this hated tax, which is seen by many as a tax on aspiration. Since the threshold was introduced last Autumn it has helped just one third of first time buyers.
The good news on Tuesday was the announcement of the Homeowner Mortgage Support Scheme which Mr darling mentioned in his budget speech. Mr Bolton King said:
“This scheme has taken months to come to fruition since it was announced last November and thousands of people have had their homes repossessed in the meantime. It is a scheme which is to be welcomed for the support it will give to homeowners.
“However more detail is needed on those major lenders that have not signed up for the Homeowner Mortgage Support Scheme but have promised to set up similar schemes of their own.”
On Mr Darling’s announcement of a package of Government guarantees on more than £50bn of new mortgage backed assets, Mr Bolton King said:
“Our figures show that there is a huge demand for property that is being frustrated because responsible people do not have access to appropriate levels of finance. Hopefully this measure will go some way to alleviate that, and I would just call on the Government to monitor carefully that this measure has gone far enough and step in if it isn’t.”
On the Money Agony Aunt Budget Wish List our employment lawyer David Jones wanted money put into projects to get the large number of young people out of work into jobs. So we’re very pleased that the Chancellor announced that he’ll spend around £260m for training and subsidies to help young people get the skills and experience they need. He promised all under 25’s unemployed for 12 months or more a job or a training place. Sylvia Perrins, Chief Executive of the National Skills Academy for Financial Services, says that’s “incredibly ambitious but it recognises the government's realisation that we can no longer sit on the fence where the future of UK plc is concerned.”
Our Money Agony Aunt expert Independent Financial Adviser Simon Hodges says: “I do like the commitment to putting money towards education and getting more young people into work as long as this is monitored correctly. But it would be a shame to use this money for people to take their skills overseas and not repay the economy through their tax or skills in the future!” Simon wanted an increase to the current ISA limit and it is to be increased from £7,200 to £10,200 so he’s happy there but he says:
"I think that there’s an issue with the increase of tax to 50% for the very top earners as this conflicts with his original manifesto which I am sure will provide an inter party debate for weeks to come rather than addressing the real issues."
John Eaton says: The Institute of Fiscal Studies has pointed out that increasing tax rates above 40% is likely to produce a reduction, not an increase, in total tax take - so the proposal to increase Income tax to 50% on top earners will be counter-productive. On top of that the proposal to restrict higher-rate tax relief on Pension Contributions for higher-rate taxpayers is hardly conducive to encouraging saving. About the only positive step in the whole Budget, was the proposed increase in the annual ISA allowance for the over-50s. This may at least encourage more saving, and offset the reduction in savings which will occur as a result of his further attack on pensions.
So are we at Money Agony Aunt happy? Well we realise budgets in the current economic climate are more about cuts than about how best to spend surplus cash but we’re worried that the Chancellor’s future growth forecasts are overly optimistic and the pre-budget report in November and the 2010 budget next spring will be even more gloomy as a result.
There will be more post budget thoughts and news items appearing on Moneyagonyaunt over the next few days.