Budget 2010 - first impressions
Alistair Darling's Budget has come at a time when the economy appears to be recovering from a sharp and deep recession. Indeed, it is possible that economists may yet be surprised by the strength of the recovery, at least initially. At the same time, the public finances are meeting Treasury projections which is another sign that things have stabilised. This Budget offered no changes of direction, which was a good thing. It highlighted some of the differences with the Tories. And the Conservative response may have given a hint of a campaign message.
The latest data show that the UK economy is returning to growth. Past recessions indicate that the recovery will not be smooth. However, UK businesses have yet to rebuild their inventories and that could provide a boost to growth figures at some point this year. That may ease the pressure on public finances, at least in the short term.
The outlook for the public finances, including debt, has not really changed much since the Budget last year. The annual deficit is projected to rise sharply and then more than halve over the next Parliament. Tax receipts have come in ahead of expectations while government spending has been in line; that adds up to a slightly better position this fiscal year (2009/10) than was expected in December. It looks too that unemployment will not rise as much as was feared; that adds up to lower benefit payments over the next year. Also interesting is that the structural deficit (that part of the debt that will not fall with the economic cycle) is projected to fall from 8.4% of GDP to 2.5% over the next five years. Moreover, these estimates have been revised down again (they were revised down in the Pre Budget Report last year). That implies a slighly more healthier long term financial position. The overall picture is that Labour remains on track to improve the public finances without risking the recovery. We should be encouraged that this message has not changed.
The Chancellor focused on jobs with further measures to encourage youth employment including the guarantee of a job after six months unemployment. This focus is important. It is a key difference compared to the Conservatives, as shown not only by their lack of attention on jobs now but by their attitude in the past two recessions. On those occasions, unemployment rose over three million.
The government took some further steps forward on bank reform. Of interest is that the government is looking at changing the way shareholders vote on executive pay. At the moment they vote on what the company has already decided, and the vote is not binding. Budget documents suggest they may be required to vote on pay terms in advance. More in a later post.
Finally for this post, David Cameron in his response referred to the pre-announced tax rises as tax bombshells timed to go off after the election. Is this going to be a Tory election slogan, with echoes of 1992? Perhaps. But the counter charge is show us what extra spending you would cut instead.