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Dark Brown cloud on the horizon

What is in store for the financial services industry after Iron Chancellor Gordon Brown threw prudence to the wind?

Interest rates look set to rise in the wake of Brown&#39s £20bn borrowing boost. Mortgage advisers believe the housing market is about to slow down.

Mortgage Express spokeswoman Jane Barnes says: “We have said all along that the housing market was going to stabilise in 2003 and this is a far healthier situation, particularly for first-time buyers.”

MarketPlace technical spokesman David Bitner does not believe the housing market is teetering on the edge of a crash. He thinks there will be stabilising but forecasts only the upper end of the market will see real change in the next few years and that price rises will continue on properties below £250,000.

Stamp duty was a notable omission from the Chancellor&#39s statement. London & Country spokeswoman Jane Harrison says: “The Chancellor has failed borrowers. Stamp duty has not been altered with price rises so people who really cannot afford to pay, like first-time buyers, are being heavily taxed.”

Bitner says one of the problems raised with any waiver of stamp duty would be establishing who is a first-time buyer and who is not, but he thinks this could be overcome by using the Land Registry.

There was disappointment also for the pension industry which is waiting for the Green Paper. Legal & General pensions strategy director Adrian Boulding says the change the industry wants from the Government is matching contributions. He says that could set the stakeholder market alight but adds: “But there was no good news in the statement so I am not expecting a great deal from the Green Paper.”

However, ABI head of pensions Joanne Segars is confident that we will see the “radical” changes in the Green Paper promised in Brown&#39s speech.

National Association Pension Funds chairman Peter Thompson says the NAPF was disappointed the Chancellor showed no indication of boosting tax incentives for occupational pension contributions.

Scottish Life head of communications Alasdair Buchanan thinks the Government is in the last-chance saloon. He says: “Recent statements have been designed to dam-pen down any hopes of radical pension reforms. We are being told effectively not to get our hopes up.”

The investment sector believes Brown has missed a gol-den opportunity.

Association of Private Client Investment Managers chief executive Angela Knight says: “Brown should have raised the capital gains tax threshold to £10,000 and abolished stamp duty on trades made on the Aim.” She says this would have helped almost 700 small UK companies to raise capital and 80,000 investors to file a simpler tax return at a cost of less than £48m.

Grant Thornton senior tax partner Mike Wharburton thinks the Inland Revenue will be investigating non-distributor funds closely and encouraging investors to move over to distributor funds.

For savers, there is a silver lining to the dark Brown cloud with a series of child-friendly policies, including an extension of child tax credit.

The Chancellor announced plans for baby bonds – trust funds set up for children with a lump sum from the Government. The products are designed to be rolled over into Isas or other savings schemes when the child reaches 18, establishing a pattern of savings.

Tunbridge Wells Equitable chief executive David White says: “Kids who need a driving licence and car to get a job will now be able to afford them. It gives them an asset they may never have had. There are, as far as I know, no similar schemes established in other countries.”

The Chancellor announced that banks and building societies will be involved in the consultation process but no mention as yet of fund firms or life office involvement. An open market provision of the savings accounts rather than a licensed provider approach has been decided.

Even after his almighty break-up with Prudence, the Chancellor is remaining steadfastly optimistic. But the new prince of the Bank of England, Mervyn King, is clearly going to have his work cut out for him in June when Sir Edward George departs and the results of the five tests to join the euro are announced.

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