Despite all the predictions, this year's showpiece from Chancellor Gordon Brown was surprisingly upbeat. He insisted that the UK is well prepared to weather the economic storm and take advantage of any upturn in the international outlook.
He even managed a few fiscal jokes. When tackling the thorny topic of raising the level of public-sector borrowing, instead of trying to give the new figures and move on, the Chancellor restated his golden rule that debt should not exceed 40 per cent of GDP. He said: “Debt this year is actually rising to 42 per cent – in France.”
But while the Budget was surprisingly robust given the circumstances, it was thin on detailed policy. The most significant areas of focus were regional policy, employment and the housing market, not forgetting the fixing of a date for an announcement on the five economic tests for the euro.
In what could lead to major developments in housing policy, the Chancellor announced new reviews aimed at helping the housing supply and mortgage finance in the UK.
Former chief economic adviser at the CBI Kate Barker will review issues underlying the lack of supply and responsiveness of housing. We can expect an interim report to be delivered by autumn.
David Miles, professor of financial economics at Imperial College, will review the factors underlying the low take-up of fixed-rate mortgages. His interim report will be delivered by autumn and there will be a comprehensive report and recommendations by 2004's Budget.
This may lead to the development of an entire new product range. Perhaps we will see 25-year mortgage rates join short-term fixed and variable rates in the best-buy tables.
The Chancellor also froze stamp duty on residential and commercial property and proposed an investigation into how best to improve the tax treatment of Islamic mortgages.
In some carefully worded sentences, he also announced new anti-avoidance powers to close loopholes which mean that only half of all big commercial property transactions – worth £10bn a year – pay the stamp duty owed. But these will only be introduced if, after consultation with the industry, there is no effective alternative for tackling avoidance.
Investment and savings
Despite contrary indications in the run-up to the Budget, the Chancellor did actually give further details of his much-hyped child trust fund. It may be that while he was considering the content of his speech during one of his late-night sessions, he realised there needed to be more good news and that parents with young families needed reminding of what goodies were on offer. Despite not having thrashed out the details of how the product will work, the Chancellor said:
A child trust fund will be established for each child born since September 2002. The fund will be available at 18, with no restriction on the use of assets.
The Government will provide an initial endowment of at least £250 for all children, rising to £500 for the poorest one-third.
Parents and grandparents will also be able to contribute to the fund.
Of particular significance to the financial services industry, child trust funds are to be delivered through open-market competition, with accounts expected to be available by 2005 and backdated for those early deliveries. The final paper describing the full details of the funds will be published in the summer. Interestingly, there is no figure given for how much this is likely to cost in public spending terms.
The Chancellor paid particular attention to the regions in this Budget. Most significantly, he announced that in future there will be regional price indices showing differences in regional inflation rates.
The next public-sector strike may not be on modernisation but on regional pay differences. Expect this trend to be extended to the private sector too.
Finally, the restatement of the date when the Chancellor will start the next chapter of the euro debate was made with the most minimum of fuss. He said: “We are within the Maastricht criteria on deficits and debt and, as planned, I will present the Government's statement on the assessment on the euro by the first week of June.”
Despite rows with our European partners and lack of support for euro membership in opinion polls, the Chancellor and the Prime Minister are not shying away from what could prove to be a far greater decision than any made in the Budget.
Ilan Jacobs is a director at Consolidated Communications