On 24^th March the Chancellor of the Exchequer Alistair Darling delivered his last budget before the general election (although, this may not be the last budget this year). Perhaps the biggest surprise of the budget was the lack of any real surprises.

The Chancellor had to achieve a difficult balance between the short-term political needs of his party and the long-term needs of the economy. On the negative side, there is still a lack of detail on how the government will cut its deficit and the Chancellor’s economic growth assumptions for 2011 and beyond are being called into question by many experts (although, there are some economists who state that these assumptions are fairly cautious as historically the economy tended to rebound quickly after sharp recessions). On the positive side, the Chancellor resisted the temptation to offer big unfunded giveaways before the election.

With hindsight, it makes sense that the government would not have wished to implement any controversial measures weeks before the general election. Nevertheless, before the budget many feared that another attack on pensions or an increase in the Capital Gains Tax rate would be announced to plug the deficit gap. Instead, Alistair Darling announced a doubling of Entrepreneur’s Relief, meaning that the first £2m of capital gains (up from £1m) would be taxed at a reduced rate of 10%. As a result, by the end of the speech the financial services industry exhaled a bid sigh of relief.

A similar reaction came from the investment markets, who, having demanded a great deal of detail about how the government would tackle its deficit, actually expected none. In the event, the Chancellor revealed slightly more information than they expected.

Perhaps the most important point about the substance of this budget is confirmation of a change in government philosophy following the credit crunch. In his speech the Chancellor announced modest but targeted subsidies for green energy, transport and higher education. This illustrates a shift away from a more laissez-faire approach of minimal government intervention in the economy, to one where the state plays an active role in supporting certain sectors and industries. This, and a mildly amusing joke about Belize, is perhaps what this budget will be remembered for.

Much of the press quickly dismissed the budget as a big non-event. However, in the current economic and political climate a non-event is, perhaps, the best anyone could have expected.  

Budget key points

• ISA allowance to be increased to £10,200 for everyone from 6 April 2010, of which up to £5,100 can be saved in cash. In future ISA limits will increase in line with inflation.

• The Stamp Duty holiday will continue for first time buyers for properties worth less than £250,000 for the next 2 years. This is to be paid for by the raising of Stamp Duty from 4% to 5% on properties over £1 million, from 6 April 2011.

• The inheritance tax threshold has also been frozen for four years.

• From 6 April, Income Tax will rise to 50% for those earning over £150,000, with a rate of 42.5% for dividends. 

• From 6 April 2011, Income Tax relief on pension contributions will be restricted to basic rate for incomes over £150,000. 

• From 12 April the basic state pension will increase by 2.5% from £95.25 per week to £97.65. The pension credit will top up a single person’s income to £132.60 a week in 2010/11 and a couple’s income to £202.40.