Chancellors delight in outfoxing the pundits. Before Alistair Darling stood up this afternoon to deliver his first Pre-Budget Report as chancellor and Labour’s second Comprehensive Spending Review, there was widespread agreement that he had little with which to surprise us.
As it turned out, the pundits were right. Darling came up with plans to counter the Conservative Party’s proposals on inheritance tax by doubling the £300,000 threshold for married couples with immediate effect; and he rubbished proposals to levy a flat-rate £25,000 charge on high-earners with non-domicile status, alleging the plan would raise for less than claimed.
The £2 billion saved by not raising inheritance tax thresholds to £1 million, as the Tories had said they would do, would, the chancellor announced, be spent instead on education and health.
But for those proposals, Darling said little that had not been widely forecast or already set out in the Budget in March of this year. And, as predicted, he downgraded forecasts for economic growth in 2008.
The report was attacked by the shadow chancellor, George Osborne, as a “pre-election Budget without an election”.
If you missed the speech, you can watch Alistair Darling’s Pre-Budget Report on video on the Parliament website. Here, however, are the highlights.
The economy
Economic growth previously forecast at 2.75% to 3.25% for 2007, confirmed (“Britain, the fastest growing major economy in the world”).
Economic growth previously forecast at 2.5% to 3% in 2008 and 2009, now revised down to 2% to 2.5% in 2008 but back up to 2.5% to 3% in 2009.
Inflation (using the CPI measure) previously forecast to fall to 2% during 2007; confirmed in today’s report.
Inflation (CPI) previously forecast to be 2% during 2008 and 2009; forecast confirmed in today’s report.
Net borrowing forecast to fall from £38bn this year to £23bn in 2012. Borrowing last year was £4 billion less than forecast.
Public spending
The Comprehensive Spending Review has identified savings of £30bn in departmental spending over and above £20bn of savings already made. Detailed plans will be published for each department.
Current spending (eg on social security benefits and public sector pay) previously forecast to grow by 1.9% in real terms each year until 2010/11.
Net investment spending (eg on hospitals and schools) previously forecast to grow by 3.7% in real terms each year, reaching 2.25% of national income by 2010/11.
Total public spending previously forecast to fall from 42.6% of national income in 2007/08 to 42% by 2010/11.
Home Office, Ministry of Justice and smaller departments: real terms cut in spending of 1.9% a year between April 2008 and March 2011 (previously announced); some extra resources for neighbourhood policing, additional prison places and border security.
Education: real terms rise in spending of 2.2% each year (previously announced); now revised upwards to provide £250 million for schools.
Defence: real terms rise in spending of 1.5% each year (previously announced). An additional £400 million is being provided for military operations abroad.
National Health Service: spending rise by an average of 4% above inflation, providing a maximum wait of 18 weeks from hospital referral to treatment; investment up from £90 billion this year to £110 billion in 2010.
Overseas aid: budget to rise to £9 billion by 2010 meeting commitment to double aid since 2004 and on target to meet commitment to spend 0.7% of budget on aid.
Transport: by 2010, the transport budget will rise to £14.5bn a year, including projects to widen the M1 and M6 and to build the Crossrail service across London.
Taxes and benefits
The main rate of corporation tax will be cut by 2p in the pound to 28% by 2008.
Non-domicile tax payers already pay £4 billion in taxes; a flat rate tax of £25,000 proposed by the Conservatives would raise not £3.5 billion but £650 million.
As an alternative will consult on proposals to close loopholes and introduce single rate of 18% of capital gains tax.
Aviation duties will be levied on flights rather than passengers.
Child maintenance allowance to be doubled to £20 next year and £40 in 2010; child tax credits to rise to lift 100,000 children out of poverty.
Pension rises to be announced later this month.
£200 million to be put aside to guarantee free off-peak bus travel to all pensioners.
Inheritance tax threshold raised from today for married couples and those in civil partnerships from £300,000 to £600,000, rising to £700,000 by 2010. This will be backdated indefinitely for every widow and widower.
Level of housebuilding to be raised from 185,000 last year to 240,000 a year by 2016; £4bn over the next three years to help fund renovation of poor-quality housing.
Main documents published by the Treasury
Pre-Budget Report 2007 and comprehensive spending review index on the Treasury website
Pre-Budget Report in full
Chancellor’s speech in full
Resources on XpertHR
XpertHR economic indicators (subscription required)
Includes data on recruitment and labour market, business confidence, pay awards, average earnings, inflation, labour disputes, unemployment and working hours
Budget 2007: key announcements
Pre-Budget Report 2006: higher growth, taxes and borrowing
Best of the blogs
Evanomics by Evan Davis, BBC economics correspondent
Newslog by Nick Robinson, BBC political editor
Darling's public spending dilemmas mount up on the XpertHR Employment Intelligence blog
Iain Dale’s Diary – by the leading Conservative blogger
Guido Fawkes’ Blog of plots, rumours and conspiracy
Newspaper and television reports
Financial Times
The Guardian
The Daily Telegraph
The Times
BBC News
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