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Budget 2008 - Political Background


Chancellor Alistair Darling, MP, in dire straits

How much choice did the Chancellor really have?

Much to the dismay of the corporate entertainment crowd, Alistair Darling scheduled his first Budget slap bang in the middle of the Cheltenham Festival. It is also three days before the Ides of March in the Roman calendar. We must assume that Mr Darling is neither a believer in Shakespearean signs and portents nor in National Hunt racing!

When Gordon Brown appointed Alistair Darling as his Chancellor of the Exchequer in June last year it seemed his main qualification for the job was "a safe pair of hands".

Fast forward to the run-up to the Budget and Mr Darling has presided over the first run on a British bank in more than a century, the biggest ever loss of personal data (from a Government intent on introducing ID cards), an unprecedented backlash from the business community and the threat of a rapid exodus of some of Britain's most successful and wealthy residents.

The Chancellor has had to perform if not U-turns then significant 'swerves' in policy on his Pre Budget Report proposals on capital gains tax reform and the taxation of resident non-domiciles. He will also have to concede publicly as a result of National Statistics' re-allocation of the numbers that Northern Rock is officially a Government debt and that Gordon Brown's cherished economic golden rules are now so much rubble.

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Labour's most difficult Budget

Budget 2008 is the toughest test for Labour since the party took power in 1997 because, to cap it all, the economy is on the turn and the Government's finances are looking distinctly unimpressive. Early in February, it was reported that Whitehall's top permanent secretaries were called to a meeting to be told that the public finances are "far worse than even independent forecasters have predicted". This is not the best position for a finance minister to be in with darkening skies over the economy at large.

Mr Darling's fiscal problems can be traced back to the guilty party. The culprit is now living next door to No 11 Downing St - at No 10 Downing St. However, the Chancellor may also be regretting his Pre Budget Report. It's been said (and by a Labour MP) that Mr Darling's capital gains tax proposals had "undone 10 years of hard work in winning over the business community".

What's more, he's been forced to compromise over his "non-dom" tax proposals, thus appearing weak and foolish; as a result he has been excoriated by both left and right - for caving in by those on one side and for damaging the tax status of the City by those on the other.

One City editor even went so far as to suggest that Mr Darling has a reverse Midas touch - everything he touches turns to dust! This is a Chancellor with the worst press since Norman Lamont in the wake of Britain's ejection from the European Exchange Rate Mechanism on Black Wednesday (16/09/1992).

Gordon Brown worked his Scottish magic on Budget day for a decade - can Alistair Darling continue the master's magical performance? It seems unlikely. The decision by National Statistics to reclassify Northern Rock as a public enterprise means Brown's once-cherished pledge to keep public sector net debt below 40% of national income has been shattered.

National Statistics said it wanted to "avoid an unnecessarily complicated and potentially misleading presentation" - a phrase well worth remembering in relation to Budget speeches (whoever is giving them).

The Government's net debt figures will now come in two sizes: with Northern Rock and without Northern Rock. Alistair Darling will no doubt seek to focus on the latter, giving that Northern Rock''s debt is now running at around 7% of national income.

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12 March 2008 © Moneyextra.com

 

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