The Pre- Budget Report.

Today the UK's Chancellor of the Exchequer, Alistar Darling delivered his annual Pre-Budget Report (PBR). Traditionally this is delivered around six months after the Budget itself and is designed to report on how that budget is progressing while allowing the Chancellor to make small changes to keep that budget on track. In recent years though, for mainly political reasons, the scope of the PBR has grown massively turning it into something of a mini-budget.

With only really four working months left until the next General Election this PBR was never going to be much more then an opportunity for electioneering. However with the UK now the only G20 nation that is still in recession and national debt running at an eye watering 80% of GDP there was an urgent need to raise tax revenues and cut spending. The main points of these plans are;

An End to Tax Holidays On January 1st 2010 the VAT rate that was cut to 15% to boost consumer spending will rise by 2.5% returning it to 17.5%. On the same date the Stamp Duty holiday that was brought in to boost the housing market will come to an end. In April 2010 National Insurance (payroll tax) will rise by 0.5%. As these measures were brought in to mitigate the effects of the recession bringing them to an end could threaten the recovery and raise the spectre of inflation. However with the nations finances in such a sorry state this small risk looks like one that the government will just have to take.

Tax On Bankers Bonuses. With immediate effect the UK is going to impose a one off 50% tax on banker's bonuses over £25,000 which is to be paid by the banks. As this is only expected to raise £1bn compared to government borrowing of £178bn it is a largely political move to convince voters that the Labour party is prepare to bash those evil bankers. Besides for the duration of the tax period I suspect most bankers will only be getting a bonus of £24,999.

Public Sector Pay Cap. The current freeze on public sector pay increases will continue until 2011. Between 2011 and 2013 any pay increases will be capped at 1% regardless of inflation. Civil Service pay will also be capped meaning that until further notice no civil servant can be employed at more then £160,000 per year (120% of an MP's salary).

Efficiency Savings. The government intends to cut £17bn of spending through mysterious efficency savings. This is a convenient way for the the government to cut public spending without it looking like they're cutting public spending because efficiency savings sound benign and you have to dig quite deep into the figures to find out what they mean. For example one of the efficiency savings is a large cut to the Legal Aid budget meaning that if you cannot afford an attorney one will no longer be provided for you. The main part of the savings though will come from so-called Arm Length Authorities (ALA's) and Quasi-Autonomous Non-Government Organisations (Quango's). Although what exactly ALA's do has long been a mystery of British politics they include regeneration agencies such as the Thames Gateway Development Corporation, various Regional Development Agencies along with a host of local projects step up to do everything and anything like increasing volunteering to improving community cohesion. To give you a general idea just go to a certain new media companies website and read through their client list. No wonder the Croydon Voluntary Action network are in no mood to celebrate.

Cash for War Veterans. Apart from an extra £16.5bn on top of the defence budget to fight the war in Afghanistan the PBR also featured, buried in the supporting business and growth section, £5million to allow war veterans to set up in business when they leave the armed services. Although £5million is a tiny sum in budgetary terms it's actually quite a large amount of extra support to lavish on a comparatively small group of people. This Mugabe-esque announcement is significant though because it shows that while Alistar Darling was given some freedom in campaigning for the Labour party he wasn't given much freedom at all in the content of the PBR.

All things considered this PBR indicates that the UK is beginning to accept the severity of its financial problems. Although optimistic the Chancellor's spending, borrowing and economic forecasts were all within the realms of reality. Obviously that does not include his prediction that government borrowing will fall to £96bn by 2013 because I do not see how that will be possible but by 2013 I doubt it will be Alistar Darlings choice to make.