U.K. budget today at 12.30pm and political rant

So Alistair Darling gets on his feet for the U.K. budget at 12.30 GMT, the last budget before the General Election in May or June this year. It is not expected to offer much in addition to the pre-budget statement from November but politically Darling will attempt to give the message that Labour is managing the British economy out of recession in a sustainable way, whilst the Conservatives are being too aggressive in focusing on deficit reduction too early (the U.K. deficit is around 12% of spend) . In the last few weeks, this difference between the political parties has been exploited to paint David Cameron's Conservatives as a party of cutting. Prime Minister, Gordon Brown's, message seems to be working as the latest opinion poll puts the Conservatives on only a 5 point lead over Labour which would lead to a Hung parliament at the election. Many votes don't want to hear the message of austerity - "let them cut something as long as it doesn't affect me!". This worries economists because it may mean that lack of full control in Parliament may mean that deficit reduction plans are not agreed putting the U.K.'s Triple A credit rating at threat.  On the other hand, it could be argued that if a pact is made between one of the major parties and the Liberal Democrats, fiscal deficit reduction could be even more aggressive as the Lib Dems are stated that they too are aligned to cutting the deficit.


Any moves by Darling on a new tax on the banking system will be keenly watched but he has already stated that he will not move with international cooperation. In contrast, the Conservatives seem to be focused on introducing the tax with or without this international agreement. Sweden have already introduced such a tax. It would be a popular move to adopt such as tax and a vote winner.


Both major political parties in the U.K. have not strayed from the message that they will not cut front line services. But the difficulty is there to see, a large budget deficit and growing debt that needs to be dealt with. Taxing the banks and high earners is a popular move but likely to lead to a "brain drain" to more welcoming taxation environments such as Switzerland. Increasing taxation is only likely to stifle wealth creation in the longer term. Cuts in big spending departments such as social security and health seem to be the logical solution, but for both the Labour and Conservative governments this is politically unpalatable even though both leaders know it is necessary. Whether Brown and Cameron say once thing during the election and act differently once they are in No.10 Downing Street is a possibility since any risk to the AAA credit rating would be political suicide. It would be refreshing if politicians acknowledged that there is no magic bullet.  The U.K. must get the budget under control without putting the economy back into the recession. Rather than increasing taxes, cuts in big ticket departments such as Health must be on the agenda. U.K. voters have to understand they can't have it both ways i.e. strong public services and low taxes. I am not aligned to either of the major parties, but I am increasingly frustrated that the  reality of the situation is unwilling to be accepted by the electorate.