Lansons Conversations

Darling sets out his final budget before the election

Budget statements are difficult enough for Chancellors without the inconvenience of a General Election within weeks. Budget statements with an election to come and in exceptional economic times wouldn’t be wished on any Chancellor. Darling however did enough to send Labour MPs back to their constituencies with good news for first time buyers, for motorists, for small businesses and pensioners whose first ten thousand pounds of income won’t be taxed and receive more pension the older they are . Better still though was that he provided narrative, theme and battle lines. No one could accuse Chancellor Darling of an obvious pre campaign give away – though the measures referred to above amount to some 1.5 billions for this year – but the messaging within the statement was explicitly political. The messaging says this is a Government which took the right decisions while our opponents were wrong. This Government knows what it takes to guide the economy back to growth. You can’t gamble on the Tories. The battle lines were defined by a series of measures hitting the most well off. Personal allowances, tax relief, the coming 50% tax rate, 5% stamp duty on homes sold for more than a million pounds. Labour is banking on middle England to deliver for them and hitting the top 1% of earners to raise the funds to temporarily delay expensive, yet inevitable cuts to public services. Over to you on that, George. The key measures ticked key political boxes. Government and public sector waste tackled by relocating civil servants. Green measures addressed through a green bank. Financial exclusion through more basic bank accounts. Roads and motorways fixed…a measure for almost every gripe unfortunate candidates will be pressed on in the coming weeks. The key test over the coming days will be the extent to which they edge Labour even closer to the Conservatives. Other proposals announced today included tougher fines for tax avoidance and a commitment to an international bank tax both measures with popular appeal This Budget has already been dismissed by the former Chancellor Lord Lamont as a ‘phoney Budget’. Whilst it is true that the markets will read more into the post election Budget, as poll after poll reveals a substantial narrowing of the Conservative lead over Labour and talk of hung parliaments and a minority government is rife, the political impact of this Budget could be great. How proposals like the stamp duty holiday and international bank tax will register with floating voters could have a significant impact during the weeks ahead. There is also a growing sentiment that the economy has turned or is turning a corner and that Labour deserves some credit for this. It would be simplistic to see this purely as a benefit to Labour. Their core message about delaying cuts will become incongruous past a certain point of economic recovery – the extent to which this Budget prolongs the suitability of delayed cutting and preserves the value of Labour’s core message will be politically if not economically crucial. For financial services there are some welcome, if small measures here, e.g. financial inclusion and more banking competition. Much of the real structural reforms will have to wait until after the election but some important directions of travel have been announced today. How these measures progress and indeed how the shape of the financial services architecture ends up could, in part, be determined by the political appeal of these measures announced today to those undecided voters. Please click here to read the full analysis by Lansons Public Affairs & Regulatory Consulting.