What's he going to do?
It's a game I always play at this time of year: guessing what the Chancellor is going to to do (I love prognosticating), and getting it madly wrong; and then doing a bit of wish-fulfilment, pretending I had the red box in my mitts and a pint of Coach House Brewery's Cromwell's Bitter by the dispatch box, and telling you what I'd do myself. Here goes.
All the financial pundits are saying Alistair Darling has no room for manoeuvre as far as public finances are concerned - and that has to be right. I don't expect any tax cuts or any announcements of significant public spending. At the same time, I don't expect him to put taxes up, either: he'll fear that this would press down on consumer spending too much at a time when the economy is on the edge of recession, and I think will avoid it. So, a fiscal boost for the economy by omission, if you like. I expect broad neutrality, and that he'll ignore the public accounts effects of nationalising Northern Rock.
Within that, though, I expect him as trailed to create some new "green" taxes, perhaps by increasing vehicle excise duty dramatically on the most polluting cars; I also expect him to shift corporate taxes and capital allowances in a green direction, rewarding firms for investment in green technologies and brownfield sites while punishing them for less environmentally-friendly investment and development.
I think he'll stick to his plans to introduce a £30,000 levy for "non-doms", those taxpayers resident in the UK but not "domiciled" here, who are currently exempt from UK tax on their earnings abroad, while perhaps tinkering with the hasty changes he made to capital gains tax late last year, so as to iron out some anomalies. And I expect him to throw in one or two gifts for his own Labour backbenchers: they'll like it if he stops gas firms from charging a higher rate to the poorest customers, and I expect him to think or one or two other small wheezes of that kind. I think he'll put duty up on both booze and fags, too.
Finally, I think he'll present a front of calm, mild pessimism about economic prospects - he'll revise his central growth figure down to 2%, and warn of international turbulence, while insisting, emphasising, stressing and repeating that he thinks the UK is well-placed to cope with the global slowdown. I think it'll be the shortest budget speech for some time, and that Darling will try to pull off his best personal trick as a minister, and dampen down media interest.
What would I do? I think the economic prospects are much worse than Darling will suggest, so I'd be tempted to cut income taxes a bit, at least at the bottom end: I might increase personal allowances, or create an exemption from employee national insurance contributions at the bottom end, or even bring back the 10% rate on a low earnings band. I'd pay for that with a tax rise at the top end, mind, by introducing a new marginally higher rate on earnings above £100,000, calculated to bring in just enough to cover my mild giveaways. The idea is to take a bit of pressure off wage claims, to stave off inflation, while also putting a bit more in consumer's pockets to help ease the coming bust. Yes, I'd expect the opposition and the press to accuse me of old-Labour style envy politics - but I'd lap that up. I think the bad economic outlook means that, politically, it's time for Labour to make voters start feeling angry at the rich, rather than at the government. For good measure, I'd also bring the non-doms completely within UK tax, and let double-tax agreements protect them from paying tax twice.
I'd up taxes on booze and fags and do the green stuff I mentioned earlier - and I wouldn't bother with higher taxes on alcopops. But another important plank of my policy would be to try to stave off what I think is a coming disaster in the housing market. I'd withdraw tax incentives for all new buy-to-let mortgages (currently, interest on buy-to-let loans can be offset against tax) and phase it out for existing ones; I'd try to design that change so as to incentivise buy-to-letters to sell in 2008, and I'd find a way of letting first-time buyers (by which I'd mean individuals who'd never owned before, and couples neither of whom had ever owned) off stamp duty entirely for the next two years. I think that those measures, combined with the tighter conditions lenders will impose on mortgages anyway because of the ongoing credit crunch, will inject both supply and demand into the market without encouraging unwise borrowing. The aim would be to prevent a housing crash while at the same time ensuring first-time buyers benefit most from what I'd hope would be managed house price falls.
Call me crazy if you like; the good news is, it's Darling's budget, not mine.
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