2008 – how to make a financial crisis seem dull, by Carl Malways
Today saw the announcement of Alistair Darling’s first budget.
Not the most interesting budget because the Chancellor had little room
to manoeuvre. On the one hand, the government is becoming increasingly
unpopular which is stopping them from making any major steps towards
raising taxes. On the other hand, the Treasury has overspent in previous
years, which has reduced their ability to increase spending now the
economy is entering a period of slower growth – and could really
do with a little help from the Government.
One major announcement
was that the 2008 GDP growth forecast for the UK was revised
down by 0.25% to between 1.75% and 2.25% in today’s budget.
This still looks like a very high estimate given that the survey
of independent forecasts, as mentioned on page 169 of the Red
Book, presents forecasts that range from between -0.1% to 2.1%
and average of 1.7% in 2008. Independent forecasts are also
in a period of being downwardly corrected by many banks and
consultancies. As the year continues the Treasury forecasts
are likely to look increasingly unrealistic.
Other measures that will impact upon work and
• Income tax changes confirmed for April. Basic rate drops
from 22 per cent to 20 per cent and the 10 per cent band is
• New charge on non-domiciled residents to be introduced
from April and won’t change during this parliament, and
next if Labour remain in power.
• Public sector employment has fallen
in the past year; private sector employment risen.
• Around £60m to be spent over the next three years
to encourage people to move into work and to move up the employment
• Spend of £10m over the next five years to create
a new science fund for teachers in secondary schools.
• Increase in the amount of funding for adult training.
Investment of £200m in poorly performing schools to try
and improve GCSE grades by 2011.
• Long-term sick to attend “work capability assessments”
from April 2010.
• New contract to help parents into work involving a commitment
to find employment. Benefits for working families will be boosted.
• Child benefit will be up to £20 per week for the
first child in 2009, a year earlier than planned. Child element
of child tax credit to be raised by £50 above inflation
• Tax-exempt limits on individual savings accounts increased
to £7,200 a year for standard accounts and to £3,600
a year for cash accounts.
• Launch of a “savings gateway” in 2010 to
encourage people to invest.
…and worst of all:
• Beer duty to increase by 4p per pint, wine up 14p a
bottle, cider up 3p a bottle and spirits up 55p a bottle.
Increasing taxation on alcohol and large cars were the only
areas the Chancellor could get away with any major increases
in taxation. With all the fuss about “binge” drinking
and anti-social behavior the Treasury has decided to take advantage
of this situation, increasing the duty on alcohol by 6% above
inflation. This has been welcomed by the British Medical Association,
but has raised concerns from breweries that sales will fall
and more pubs will continue to shut.
It is unlikely that the Chancellor was too worried about the
health benefits of high taxes on alcohol, and was more interested
in the raising revenue, but perhaps that’s just the cynical
views of a man who likes a pint.
All in all this was an uneventful budget that will not be widely
remembered. The key things to take from this are: the government
are likely to have got their sums wrong; there have been some
moves towards reducing child poverty; there has been some simplification
of the tax system (a good thing but could go further); and if
you smoke, drive a big car and like to drink then the government
thinks you are a bad person and wants you to pay for it.