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A winding road

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Stephanie Flanders | 10:15 UK time, Wednesday, 24 March 2010

Alistair Darling presents himself as a chancellor who plays it straight, and today was supposed to be no exception. Others might be lurching wildly - torn between Labour's position in the polls, and the cost of government debt.

Westminster Clock TowerMr Darling, we were told, was a man who sticks to the path he's set. Maybe that's what we'll hear later on. But it seems there's going to be a couple of detours.

We now know that stamp duty is going to be abolished for first-time buyers purchasing houses for less than £250,000. On the face of it, this is completely at odds with the government's strategy for the recovery, which is to re-balance the economy away from consumption and debt - in favour of exports and investment.

The best that can be said of this change is that it doesn't cost much: when George Osborne proposed it in the autumn of 2007, he said it would cost £400m. That sounds about right - though even that could be a bit high.

According to the Treasury's own ready-reckoner, raising the threshold for everyone would cost £910m in 2010-11 and £1.1bn next year. Usually, first-time buyers account for about 40% of housing transactions, though that share has fallen sharply in the past two years.

You'd also expect the average purchase price for first-time buyers to be lower than for the broader population. That would push down the cost as well.

The other news is that the increase in fuel duty pencilled in for next month is going to be introduced in stages. In last year's Budget and the pre-Budget report, the chancellor announced fuel vehicle excise duty increases worth £1.8bn in 2010-11. It will be interesting to see how much of that he's going to reverse. My bet would be less than half.

How will this square with all the talk about supporting jobs - and boosting private investment? We will wait to hear. But as I said on the Today programme this morning, I will be looking to compare the size of this consumer giveaway with the giveaway for companies, and the "takeaway" from the banks.

If the Alistair Darling we read about plans to make an appearance in Parliament today, he'll want to show that boosting private investment is a higher priority than winning votes.

And he'll want to show he's paying for those trinkets for tax-payers by extracting a "payback" from the banks, and without compromising his plans for the deficit.

Though they seem at odds with the long-term strategy, the stamp and fuel duty "giveaways" do provide useful cover for the chancellor in his argument with the Conservatives over the timing of budget cuts.

For some time now, I and others have been pointing out that the gap between them was more rhetorical and real - not least, because the government was planning to withdraw more than £20bn from the economy this year by reversing the special stimulus.

By introducing these measures - and probably some new spending in 2010/11 on helping the unemployed - he can claim the government is supporting the economy, at the margin, where the Conservatives would cut.

That may help the rhetoric. But when it comes to the macro-economy, remember that the impact of returning VAT to 17.5% will be far greater than any modest spending measures he announces today. And - once again - it will be important to see how he pays for those changes. He may not be "spending" any extra money at all.

In all this I haven't mentioned the markets. Investors' expectations of Mr Darling were the focus of my piece on the News at Ten last night. But clearly, they too will be looking to compare the amount spent on voters and companies with the amount raised on the financial sector - and, crucially, the amount put into lowering the deficit.

On borrowing - keep your eyes on one number: the structural deficit in 2014-15. If it's lower than 3.1% of GDP (the forecast in the PBR), then that means the Treasury thinks the job of fixing the public finances has got easier.

Investors will want to see that he has used that as opportunity to finish the task more quickly, not spend more on coaxing voters today. If the total figure for public sector net borrowing in 2014/15 has not also fallen, that will not go down well at all.

As for that rhetoric about "supporting the recovery'" - the key will be to look at the Budget measures taken together. If the net effect on the government spending and revenues is broadly neutral, then the impact on the economy will probably be neutral as well.

Labour would argue that the money spent on, say, giving temporary jobs to young people will boost demand more than raising taxes on very high earners will reduce it. And yes, it's unlikely that people on more than £150,000 are going to be shopping in Aldi as a result of the 50p rate.

But even so, you're still talking about a very modest net impact on the recovery this year. The effect on the chancellor's reputation is even harder to judge.


  • Comment number 1.


    On stamp duty changes: if the stamp duty is lowered all that will happen is that house prices will rise to adsorb the duty reduction.

    So I disagree with your statement "That would push down the cost as well."

  • Comment number 2.

    What he should do is announce a wage ceiling on all public sector workers - something high enough not to worry most people, say 200K, and to close all the gold-plated public sector pension scheme to new members. Not popular, but will save a great deal in the longer term.

  • Comment number 3.

    'government's strategy for the recovery, which is to re-balance the economy away from consumption and debt - in favour of exports and investment.'

    This government has no such strategy. All they have is spin. They've spent the last 13 years damaging both exports and investment and all they're promising is more of the same failed policies and the more of the same spin.

    The only exports this government encourages are exports of jobs and talent.

  • Comment number 4.

    'How will this square with all the talk about supporting jobs - and boosting private investment?'

    'he'll want to show that boosting private investment is a higher priority than winning votes.'

    We all want to see a boost to private investment so don't you think it would be useful if you could mention what this governments record has been over the last 13 years so we can judge their competence in this area. I mean if they've failed for the last 13 years then why on earth should we take seriously anything they say now ?

    If you won't do so then perhaps I can help you out -

    'The 5.8 per cent quarter-on-quarter reduction marked the sixth successive quarter of falls and triggered the steepest annual fall since records began in 1967'

    'Official figures showed business investment in Britain falling by a record 24.1 per cent in the three-month period, compared with a year earlier'

    'The ONS report showed manufacturing investment slumped 8.2 per cent on the quarter and 35.3 per cent on the year to £2.3 billion, while private-sector services investment fell 8.3 per cent in Q4'

  • Comment number 5.

    You're right Steph. The stamp duty give away is entirely at odds with the government's policy to re-balance the economy away from consumption and debt - in favour of exports and investment.

    But of course that's what they said six months ago. It sounded good then but they didn't mean it and indeed their attitude to the financial services sector tells us that they actually have no intention of rebalancing the economy. In fact if you look at some of the Govt's own contract awards (e.g. the light tank) it's obvious that the Govt is still intent on reducing manufacturing to a cottage industry.

  • Comment number 6.

    strange how all the leaks are of good news (ish).

  • Comment number 7.

    >>Mr Darling, we were told, was a man who sticks to the path he's set.

    Now is a time to remember what is "paved with good intentions" !!

  • Comment number 8.

    The best budget speech Darling could give is to stand up with his little red briefcase, open it, and show us there is nothing inside.

    "This, citizens of Britain - is your Economy - Empty, devoid of substance but covered with a facade of red leather to give the impression there is something within. However as is this briefcase, even the facade is wearing thin and I don't know how much longer I can keep others from looking inside. Once the secret is out - then the markets will tear this country limb from limb in order to extract whatever value we have left"

    ...and with that - be the first chancellor to tender his resignation on Budget day - live at the box.

    Then I shall have respect for him.

  • Comment number 9.

    "1252 That cut for first-time buyers will be paid for by a hike in stamp duty to 5% for properties worth more than a million pounds. This is met with cheers from Labour MPs and stony faces from the Conservatives."

    Looks like the rich are going nowhere then!

    Ha Ha ha ha - class war - the only acceptable type of war.

  • Comment number 10.

    "1257 Another policy confirmation - next month's planned 3p increase in fuel duty will be staged to soften the blow. It will go up by 1p in April, another 1p in October and a final 1p in January 2011."

    ...and then by 3p in April 2011!

  • Comment number 11.

    You can't take this goon seriously, in his April 08 budget he was predicting 2.5-3% economic growth in lieu of Northern Rock 5 months later. The guy hasn't a clue, totally away from the pulse of reality

    He hasn't had to make a penny in the real world himself and I'm totally mistrustful of a government that's idea of reinvestment was to slash against the wall the bonanza from mobile phone operating licences by increasing public sector departmental salaries to monitor and offer strategies for everybody else's efforts.

  • Comment number 12.


    the rise in stamp duty we assume will apply to commercial property as well as residential. We also assume that commercial property investors will aim to retain the yield profile in a purchase so the extra 1% stamp duty means the vendor will receive 1% less from a sale. this will have a direct impact on all the banks who are looking to dispose of property. Was this considered?

  • Comment number 13.

    We are so intertwined with the good bad and indifferent economies of the world via derivatives yet the political thinking these days seems so UK centric as though we live in a bubble immune from things like Greece, Portugal and (pick any one of 6 others) defaulting.

    If one of those weaker than us euro economies fails, all eyes would focus on the strategy of the next weakest ie the UK and we could well end up being downgraded by a credit rating agency too. If that happens, (and with such ginormous ongoing debt figures and over optimistic growth forecasts being banded about these days, why not) todays tinkering budget sums are all over the floor and we should all go and buy a gallon of hiked taxed cider to drown our sorrows.

  • Comment number 14.

    Me and my 5 million co-shirkers can't wait to start our 1200 week paid holiday. Best not rock the boat......hope the loot doesn't really run out before 2020. to the golf club now, it's been such a hectic week....what with all the worry that Alli would say something beastly today......



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