An Iceburg Budget - by John Whiting

AN ICEBERG BUDGET

By John Whiting

Budgets are like icebergs. The speech is what you see on the surface; below the waterline is the great bulk of the detailed material that has to be waded through to really sort out its impact. And that impact, as with icebergs, can be damaging for those who run into it unawares.

The 2008 Budget has been more of an inverted iceberg, given the amount of changes on the tax front that we already knew about. But there was still a good deal for Alistair Darling, in his first Budget speech as Chancellor of the Exchequer, to do and possibly founder on if he didn’t take care to sound upbeat in his assessment of the economy in particular.

At the same time, Darling had to appear realistic, which he did in admitting that UK growth for the current year would be a modest 1.75-2.25% – though stressing that this was still growth, and better than many of our competitors are doing. Next year, growth would be back to 2.25-2.75% so we are talking slowdown, not meltdown. Inflation would be back on track in 2009. As for borrowings, those are slightly lower than the October 2007 Pre-Budget Report (PBR) estimate for the current year at £36bn, but with £43bn next year and continuing slightly higher than expected, though on track by 2012. The Golden Rules are apparently on track, with real spending growth from 2011 confirmed as 1.9% a year and an overall slight tightening in this Budget with a net increase in tax of £790m in 2009/10.

Read our instant analysis of the economy.

On the tax front, Mr Darling was never going to make significant changes to the plans announced a year ago by his predecessor and now neighbour, Gordon Brown, in his last Budget. It was also likely that we would get a robust defence of his PBR announcements on capital gains tax (CGT) and non-domicileds, which duly arrived, The relaxation to the CGT rules is to be limited to the already-announced £1m entrepreneurs' relief; as for the non-domicileds, the central £30,000 levy and the impractical loss of the personal allowances remain, albeit with a £2,000 minimum threshold.

The controversial proposals on 'income shifting', that affect all family businesses, are also to go ahead but not until 2009 so there is time for more modifications to this administratively burdensome and impractical scheme.

New tax measures had been widely predicted to be focused on increases in alcohol duties (the first increase in spirits duties for 10 years) which seem to be something of a ‘booze tax escalator’ over the next four years and on higher-emission cars’ vehicle excise duties. The green credentials of the Budget were arguably a little damaged by the (perhaps understandable) decision to postpone the scheduled 2p a litre increase in duty until October, though real increases of 0.5p are planned for 2010. And the duty differential on biofules is to disappear in 2010, raising £0.5bn.

Business would be disappointed with no sign of further cuts to corporation tax, although, to be realistic, they were always unlikely and there was a confirmation of the intention to keep the rate internationally competitive.

The good news in the Budget was a certain amount of drum beating for the tax and benefits changes that were already in the pipeline plus more to come on the benefits side, mainly targeted at those with children. The predicted move on fuel purchases via pre-payment meters happened with a commitment to work with the energy companies to look at ways of making the route cheaper. The idea of a 'plastic bag' tax finally won through, depending on voluntary action in the meantime. Perhaps more subtly, the good news is that there were no major new tax changes nor significant additional spending – this was a consolidating Budget.

At the end of the 50 minute speech, perhaps it was all down to steering carefully round that iceberg.