I’m not officially working today (am at home, in recovery from gastric flu). But I’ve just been passed something so fascinating I couldn’t help passing it on.
You may not remember but something called the “Homeowner Mortgage Support Scheme” was one of the flagship ideas in Gordon Brown’s Queen’s Speech in 2008. (Even Alex and I were quite excited at the time.) The idea was to help people defer mortgage interest for up to two years if they were struggling with payments. The scheme took ages to set up and – even when it was finally announced this spring – only half of lenders fully signed up to it. Even so, the government presented it as a major victory against repossession.
One of the footnotes buried in the PBR gives the full estimate of the decision to delay the government’s pension reforms: £2.4bn. A neat saving. And the impact of postponing the tax relief won’t be felt in full until 2014, so the politics don’t look bad either. But this revenue will be raised at the expense of the poorest workers in Britain. Small business, on the other hand, will be delighted.
Maggie Craig of the ABI explains it all quite succinctly:
There is at least £730m of “reprioritised” spending in the PBR, covering new pledges on mortgage support, support for the unemployed, scrapping boilers, “strategic investment funds” etc.
The point is that Darling has decided that it is better to spend savings on new commitments, rather than paying down debt. It is an attempt at sugar coating what was always going to be a grim run down of the public finances.
There is relatively little detail on where the cuts will come in various departments. But some blood is spilled on pages 109-110. This £5bn of additional savings comes from areas ranging from bus passes to cutting skills budgets. Here’s a selection:
– £1.4bn from withdrawing the “jobs guarantee” for young people from 2011
Three FT experts give their views on Alistair Darling’s pre-Budget report. With Chris Giles, Nick Timmins and Patrick Jenkins
One moment of political theatre in this PBR was the raid on City bonuses to pay for increased support for unemployed youth. “This additional money will be used to pay for the extra measures, already announced, like help for the young and older unemployed to get back into work,” Darling said. But if you look at the PBR fine print, the pledge is not as simple as it seems.
Bringing forward the “jobs guarantee” for young people from a year to 6 months costs about £355m in 2010. But a footnote in the PBR notes that this is “funded by Department for Work and Pensions underspend”. No mention of the banker tax.
We’ve just returned from the Treasury briefing and there is plenty of fascinating detail to turn over in the PBR. But first it is worth highlighting one of the big strategic choices. While the package is broadly neutral, Alistair Darling has changed the fiscal mix in his plans to tackle the deficit: this PBR increases spending by raising taxes.
This balance between whether taxes or spending should carry the heaviest burden in terms of reducing the deficit is one of the most important decisions a chancellor can make. As we reported earlier this week, a recent Treasury study reviewing successful fiscal consolidations around the world gave ministers some sound and simple advice: the best way to close the fiscal gap is 80 per cent through spending restraint and 20 per cent through taxes.
UPDATE: Summary of the main points of the pre-Budget speech
The following is a summary of the chancellor’s pre-Budget report; most recent statements at the top:
[Chancellor sat down at 1.18pm]
Raise starting rate on National Insurance to ensure that no one earning less than £20,000 will pay extra
All National Insurance contributions up by 0.5 per cent from 2011
Spending on overseas aid will rise to 0.7 per cent of gross national income by 2013
Further £2.5bn for military operations in Afghanistan
All public sector pay rises to be capped at 1 per cent from 2011
We will have live coverage of the PBR here from 12.30pm.
In the meantime, here’s the latest on Alistair Darling’s speech: