Alistair Darling’s pothole budget

I would call this the pothole budget. Not just because of the doorstep issue that is causing cracked rear axles and broken bikes up and down the nation, and for which Mr Darling scrambled together £100 million (this will go down on the doorstep far better than you might imagine).

The question is what has happened to the giant pothole in the public finances? The answer is that some of it, more than expected, has been filled in, but not by Mr Darling.

A C5 is commonly thought of as a triumphant piece of British innovation, designed by Sir Clive Sinclair, that ultimately turned out to be a commercial failure. A table “C5” on page 190 of the 2010 Budget is at the heart of this cunning document.

Two things stand out. Over the next 5 years there’s £59 billion less in borrowing than predicted at the pre- budget report in December. Is this change we can believe in? Is this Mr Darling’s shovel filling in the budget deficit pothole?

Well, no. An incredible £54.5bn of that £59bn is the result of “revisions and forecasting changes”. Just £1.5bn (or 2.5 per cent) of the improvement in borrowing over the next 5 years comes from “Budget 2010 policy decisions”.

So to the extent that the pothole is less deep, it’s almost entirely nothing to do with actual decisions made by the budget. Instead the economy has proven less fiscally damaged. Tax revenues are expected to continue to be more buoyant and benefit payments fewer from lower-than-forecast unemployment.

Now the Treasury will argue that they did make a choice NOT to “spend” this unexpected bounty. It’s certainly was what they did at the PBR, where there was a similar bounty from revisions, which was entirely spent.

Today’s budget comprises a tiny giveaway this year followed by a small takeaway, a net fiscal contraction of 0.1 per cent. It is fiscally irrelevant, save for them eschewing the temptation to spend the non-existent saving.

The diminutive scale of the decisions is illustrated by the fact that the biggest impact in the year after next arises from a £320m taxpayer gain from the “Liechtenstein Disclosure Facility”.

The stamp duty cut is pure Robin Hood politics, up to a point. As Capital Economics point out that the stamp duty move will be “popular among aspiring first-time buyers, it is fairly clear that the chancellors stamp duty measures do nothing to resolve the real problems facing the housing market – overvaluation, a lack of mortgage credit and a moribund house-building sector.”