Duncan’s Economic Blog

Budget Reaction

Posted in Uncategorized by duncanseconomicblog on April 22, 2009

Instant reactions here. I obviously have not had time to go through the documents in detail.

The Good

Darling’s quote: ‘you can’t deflate your way out of a recession’. I’m glad he gets it, unlike the Irish who are openly aiming to deflate their way out of a recession.

The fact that Darling grasps the potential problem of choking off a recovery by tightening policy to quickly.The Tories will scream and shout about it taking four years to halve the deficit but that is a sensible way to proceed.

The extra £1.7bn to tackle unemployment – especially youth unemployment. I’d have preffered more but this is good stuff.

The commitments on child poverty.

Help for pensioners.

What looks like some dent help for small business.

The intention to raise taxes on the highest earners. Obviously it will not be enough to pay back all of the debt, but they must pay their fair share.

Recognition that the UK has a decent export centre in advanced manufacturing, green tech and communications.

The Bad

A bit too much direct support for the housing market for my liking. Trying to keep down repossetions and help people stay in their homes is all good and well but getting involved in supporting the mortgage market through buying mortgage backed securities (MBS) smells of trying to support house prices. The problem for first time buyers is not having the (rationally) higher required deposit. This doesn’t help that.

The Potentially Ugly

The 2011 growth forecast look pretty bullish – maybe too bullish. Especially the assumption that consumption will grow 2.25% in 2011 – higher than average of 2000-2006.

Overall – I am reassured that Darling ‘gets’ the nature of the problem. I am reassured that he is targeting resources where they will be effective. I am pleased that we are opening up dividing lines on tax. I don’t think we are doing enough over all. But not as bad as I feared.

6 Responses

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  1. thelocalgovernmentofficer said, on April 22, 2009 at 1:31 pm

    “The problem for first time buyers is not having the (rationally) higher required deposit. ”

    But the £1bn that was going to be used for new housing has been cut back to £500m in order to pay for an expansion of the “OwnChoiceHomeBuyDirect” scheme where the Government will lend a first-time buyer their deposit. Stupid (in the private sector ‘gifted deposits’ are now widely seen as a type of fraud), but it solves the problem.

    • duncanseconomicblog said, on April 22, 2009 at 1:33 pm

      I missed that. Very silly.

  2. newmania said, on April 22, 2009 at 2:01 pm

    The 2011 growth forecast look pretty bullish – maybe too bullish.

    You think !!!!

    Dividing lines on tax-The 45p rate on £150k incomes and above will be increased to 50p. Those on £100k will not benefit from increase in thresholds. Why ?
    The IFS calculated that the Government would maximize the revenue it collects from those earning over £100,000 by imposing a marginal rate – the additional tax paid on each pound of increased income – of 55.6 per cent. This is perilously close to the ( April 08) marginal rate of 53 per cent charged when income tax, national insurance contributions and indirect taxes are all included. (Dominic Lawson). The IFS concluded that “there is not a powerful case for increasing the income tax rate on the very highest earners, even on redistributive grounds.” The other day the IFS showed that Imposing a new 45p rate of income tax on the rich will actually cost the Treasury money, The top rate of tax will force rich people to leave Britain or use accounting rules to avoid paying income tax on more of their wealth , they said . So this new rate is a costly political stunt only

  3. hopisen said, on April 22, 2009 at 4:33 pm

    What do the gilt yields look like?

    • duncanseconomicblog said, on April 22, 2009 at 4:43 pm

      3.44%, up 0.13%. So still low – although not a great reaction. To give context a 0.13% move is big but not huge, it just takes yields back to where they were two weeks ago. It’s not a sell off of UK debt but nor is it an endorsement of the budget.

  4. […] your correspondent escaped from his third person cage to offer his views here, Duncan also offers a good breakdown here. The Tories exploded at the announcement of the 50% tax and the Lib Dems were not exactly […]


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