If I were Chancellor….

I’d probably be rather stressed right now if I were in Alistair Darling’s position. He finds himself preceding over the most difficult budget in a generation as we are arguably close to entering a depression.

So what do I think he will do? And what would I do?

ECONOMY

All the focus will be on his updated projections for the economy which are sure to make grim reading along with just how much debt we have as a country, but he’ll try and convince us that he thinks will start to improve late this year. If I was him I’d opt for playing the classic REM track “It’s the end of the world as we know it” as I walk up to the dispatch box!

HOUSING

Expect stamp duty levels to remain as they are, but I wouldn’t be surprised if he announces some headline grabbing policy of more house building. Ironically, increasing the housing supply is actually likely to push prices downwards but it will win some votes anyway so he’ll press ahead.

CIGARETTES AND ALCOHOL

Last year Darling announced that duty on alcohol would rise by 2% above inflation for the next 4 years. Any further increases this year would be very unpopular given how stretched peoples own budgets are so he’ll probably leave it alone this time but I expect further increases on Cigarettes. Personally I’d do the same, but if I was in a controversial mood I’d hike cigarette duty much higher in an attempt to price more people off them.

CARS, FUEL AND ROAD PRICING

The car industry will be on the edge of their seats watching Darling deliver this years budget as they are desperate for help. 

Last time out he was keen to push his green credentials announcing an increase in fuel duty from 2010, higher road tax for the most polluting cars and funding for road-pricing proposals. He might conveniently forget to mention these policies this year. If I was him I’d stick with the changes to road tax as it included reductions for the least polluting vehicles which is both good for the environment and the pocket.

PENSIONERS

I wouldn’t blame pensioners if they were cursing Darling before he even opens his mouth. The past 12 months has been a nightmare for them as interest on savings has dropped to practically nothing. Not only has their income reduced dramatically but also their two biggest outgoings, utility bills and food costs, has been rising rapidly. Last year the Chancellor tossed them an extra £50 in winter fuel allowance and I expect him to do something similar this year.

Quite frankly the way this country treats its pensioners is shameful. It’s about time state pensions were raised to a level that allows them to enjoy a comfortable retirement. Most of their spending remains here in the UK so some of that quantitative easing should be channelled through them, a win win scenario for both pensioners and the UK economy.

And I completely support what Vince Cable (Liberal Democrat Treasury Spokesman) wrote in the Daily Mail this weekend, "When deciding what benefits a pensioner is entitled to, the Government assumes, unbelievably, that they earn a 10.4 per cent annual return on their savings (a policy which dates from 1987 and Margaret Thatcher’s Government). This must be cut to fair and realistic levels – say the annual average base rate".

BENEFITS

Last time he said all long-term recipients of incapacity benefit will attend work capacity programmes from April 2010, but I expect this will have slipped off the radar as the focus switches to dealing with rising levels of unemployment. If I were the Chancellor I would announce a new policy of jobs for all, cancel unemployment benefit and replace it with a guarantee of at least 20 hours work per week for everyone. Put simply, making people work for their benefits. Just imagine what the 2 million people that are currently unemployed could achieve.

Darling believes that the measures he has already announced regarding housing and council tax benefit  will mean families on benefit are better off in work from October 2009. In the coming months I plan to work through the numbers and see if he was right, so watch this space. But how do you define better off? They may earn an extra £50 per month by working but is that worth getting up at 7 o’clock in the morning and going to work 5 days a week? It’s time we acknowledged that encouraging people back to work has to be more than simply being slightly better off financially.  

BUSINESS

A big focus for this years budget will be on what the chancellor can do for businesses in this country. Corporation tax was reduced from 30% to 28% last time and whilst Darling might be tempted to reduce this further to help companies during the current economic downturn, he still needs the valuable tax receipts as he attempts to balance his own books (largely unsuccessfully!).  

ENVIRONMENT

The environment normally gets plenty of mentions in the budget but rarely is there anything of any substance beyond throwing around some targets for worrying about far into the future (such as raising the UK target for emissions cuts to 80% by 2050 in the last budget). Expect more of the same this time round.

EDUCATION

Previously he declared that by 2011, every school "will be an improving school". Which can surely be read as an admission that currently schools are in a pretty bad state. He also announced that there would be a £30m fund to improve science teaching, that’s barely enough to buy every pupil a test tube! Worse still you can guarantee that most of that money would be eaten up by the agencies that will be created to deploy this initiative. 

Investing in education is the equivalent of investing in the UK’s long-term future, but the economic problems are in the here and now so expect to see education dropping down the list of priorities in this budget. Sure there will be some headline initiatives, but nothing of substance. If I was calling the shots I’d be pumping some more of that quantitave easing money into refurbishing schools across the country. Not only will that help improve education but it will give builders something to do now that house building has dried up. If these builders are out of work they’d be claiming unemployment benefits anyway, so the government might as well get something for it’s money.

POVERTY

Both Darling and his predecessor Brown always pull at the heart strings with this one and I expect more of the same this year. The phrases "eradicate child poverty", "families better off" and "better deal" will be stringed together in a rousing speech but are rarely backed up with any real measures to achieve them.

SAVINGS

Beyond confirming what the annual ISA allowance will be, savings have slipped down the agenda every year. Whether this is a symptom or cause of our current debt addiction is an argument for another day, but this year savings will be making a comeback. Perhaps he’ll increase ISA limits significantly, but with interest rates so low any tax saving will be minimal and of little benefit to most people. 

ARMED FORCES

In the months leading up to the last budget the papers were full of stories about the armed forces struggling with faulty ageing equipment, so Mr Darling tossed them £2bn more to spend on troops in the frontline, including £900m earmarked for military equipment. This time round he’ll be looking for savings to help balance his books so expect a similar amount of savings to be announced from reducing the number of troops in the frontline.

We have spent billions searching for weapons of mass destruction, in my opinion it’s time to change the policy and search for an alternative to oil instead.