We think overall it is a positive and straight-forward Budget. There are some sensible and helpful economic forecasts from the Office for Budget Responsibility (OBR). Help for savers and first time buyers were the most eye-catching measures, and then there are lots of small nice-to-haves spread around. The Budget will probably be positive at the margin to the Conservative’s standing in the opinion polls.
It is not a big-bang Budget despite the forthcoming election, given the Chancellor’s need to stick with a fiscally responsible mandate. The strong commitment to bringing down the budget deficit in return for long-term stability will be welcomed by the markets. Given the fiscal discipline, the squeeze on public spending is projected to end a year earlier than planned in 2019/2020, which is a positive.
Revenue will be boosted by annual bank levy increases and the sale of assets of previously bailed-out banks, as well as a crackdown on tax avoidance – a populist approach to target banks and pay down national debt.
The new ‘save to buy’ measure reflects the government’s continued eagerness to prop up the housing market. The government will fund a payment of £50 for every £200 saved by the individual, up to a maximum of £3,000 for £12,000 saved. Hence ‘save to buy’ is essentially a direct transfer of taxpayers' money to homeowners, unlike existing ‘help to buy’ schemes where the government is lending the money. With the effect of ‘help to buy’ fading, the Chancellor is hoping that the new scheme will provide further stimulus, and votes from younger people. There is a risk that the housing market heats up, but it has calmed down over the past year, and first-time buyers are struggling – so it will be viewed as a net positive and headline-grabbing.
On a fixed-income related note: George Osborne was able to show that debt/GDP will, as originally planned, be falling from this year onwards. This is largely due to selling off £13 billion (out of c. £54 billion) of the Northern Rock/Bradford & Bingley mortgage book and £9 billion of Lloyds shares and much lower-than-forecast interest on debt. This means 2015/2016 total gross debt issuance is only around £7 billion more than the current year, compared to some forecasts of £30 billion or more extra. The proportion of long-dated issuance has been raised but clearly out of a smaller total.
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