I write this blog on the morning before George Osborne delivers his last budget of the current Government. It is the one opportunity when a politician has the ability and opportunity to spend or commit our public money with the deliberate intention of influencing how we the voters, might cast our vote. The question is will this opportunity be taken? History would suggest that pre- election budgets have not had any significant impact on election results, though possibly the failure to use the opportunity has been negative.

We are told that there will be £6bn available to giveaway, but is the basic analysis flawed. A big problem with Public finances is that the overarching calculation is based on cash-flow rather than our balance sheet.

In 1842, income tax was again touted as a temporary measure after it had previously been introduced on a temporary basis to fund the Napoleonic Wars. PM Peel wanted both to combat the "mighty and growing evil" of the rising national debt and cut taxes, tariffs and excises to promote free trade.

"For a time to be limited" therefore, income above a certain threshold was to be taxed at a rate of seven old pence in the pound, or about 3 per cent. The temporary tax has evolved greatly since then, but has remained resolutely in place.

I am sure at this budget we will be told how well the Government has done at reducing the deficit and how they will continue to reduce it. But the dialogue is about current account deficit - meaning the reduction in the rate we are continuing to increase our debts! Our total debt continues to rise and when the Government reports how much of our taxes goes on debt they only talk about debt servicing (interest) not debt repayment. This is at a time when Government has insisted bankers do not consider interest only borrowings, which credit card companies write regularly to customers who only pay the minimum payment, but must always look at borrowers ability to repay.

The cynic might say that the changes in pension rules to enable people to effectively cash in their pensions has a political aim, aside from the addressing the unpopularity of annuities. Those cashing in their pension pots may give Government a tax windfall and possibly a boost to the economy if that money is spent.

In political terms the Government will suggest whatever is in the budget is to deliver long-term stability, recovery and a successful UK economy; the opposition will brand it bribing the electorate, gambling with our economic future and how much better things would be with them. We are always told to be suspicious of the bearers of gifts but electoral history suggests, whilst we may be suspicious, we prefer those people who do opposed to those that don't.

Jonathan Russell

Partner

ReesRussell

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