Do you Belize it?

Whatever the financial situation, the 2010 budget was always going to be an 'election budget.' In a few weeks time the voting public will decide who, if anybody, they want to govern Britain in the immediate future. There may be a clear majority for one party, but at the moment, it seems more likely it will either be a hung parliament, or a small majority, for either the Labour or Conservative Parties.

The Chancellor of the Exchequer, a position he has held since June 2007, Alistair Darling, had a very difficult balancing act to perform. He firstly had to convince the money markets that the government had the right ideas for dealing with the financial situation, cutting the deficit and dealing with the debt.

His second task, was to show the people of Britain that although the situation is not easy, that the government still believed that it was important to continue to invest in essential public services, as well as training and employment opportunities for those who have been left jobless, and to bolster small and medium sized businesses.

As is well known, some two years ago, the global financial system suffered a collapse brought on principally by the actions of banks in lending to people who would be unable to repay, but also borrowers taking on easy credit. In the end, the number of people defaulting on their mortgages got too much for the system to stand. Although this 'bubble' originated in the States, the way the risk was moved around and spread, meant that when it burst, nobody was safe.

As this 'financial tsunami' spread, many banks and other financial institutions came under severe pressure. Savers began to fear for their money, and some big names, such as Lehman Brothers, and the financial markets, there was a real danger that the whole edifice could come down. Governments all over the world felt that the only effective course of action was to inject huge sums of money, to try and keep the system alive. In the United States the Bush administration started, and it was continued by Obama when he assumed office.

In Britain, similar moves were made by the government, which included taking some of the worst hit institutions more or less into government ownership. These moves have managed to stabilise the system, but propping them up isn't enough. In order to get the economy moving again, the banks needed to start lending again to businesses, but they were so traumatised by what happened, much of it self inflicted, that they have been very reluctant. Resulting in many closing, or laying off staff.

That is a very basic outline of the causes of the current situation. However, the end result has been that the moves taken by the government has meant a huge deficit has occurred, as well as increased government debt. Many companies failed during this period, and unemployment has risen substantially. Lots of blame has gone back and forth over the causes of the recession, and to what extent the actions of individual governments have either made it worse, or eased the effects. These are all legitimate arguments, but economic historians will still be arguing over the causes and effects for many decades to come. That is not for this analysis.

My aim is to examine the budget brought forward by Alistair Darling yesterday afternoon. It won't be an in depth economic examination, that can be done in much greater detail, and with more expertise elsewhere. I intend to try and give a sense of what I believe the Chancellor was trying to do, and ask questions about what else should have been done. Now, and in the past.

Budget day is one of parliament's great occasions. Indeed it for times such as this that Churchill insisted the chamber be rebuilt to it's original dimensions following its bombing during World War II. The benches are full to bursting, and even senior ministers like Financial Secretary to the Treasury Stephen Timms have to sit on back benches. The atmosphere is electric, and although these days there is some idea of the measures to be included. The Chancellor often manages to spring a surprise or two.

However, the 2010 budget was not one to make big announcements in. The economic situation is still too uncertain, and although recently things have seemed to be steadily improving. The housing market strengthening, unemployment falling, inflation falling, it is still too fragile. It probably wouldn't take too much to send things back down, with the possibility of a double dip still looming. Therefore, calm and steady was the mantra, and Alistair Darling pretty much stuck to that, very much in keeping with his personality.

The Chancellor is not renowned for rhetorical flourishes during his speeches, but he does have an unexpected sense of michievousness. On the two principal occasions he demonstrated this, firstly, after a list of taxes that would effect the better off he said, "We have not raised these taxes out of dogma or ideology, " which I assume was said with his tongue firmly in his cheek.

No matter how fair or necessary you may believe this to be, a Labour government will always ask for those who can afford it, to shoulder a greater share. In the same way a Conservative government will always favour big business, and its belief that if you encourage the individual they will take responsibility. I would argue that New labour manages to mix these up quite successfully, but that's a discussion for another day.

The second time also came with a sense of the dramatic, and was definitely designed to be a crowd pleaser, at least on the government benches. This was when he announced that new tax information exchange agreements had been signed with Dominica, Grenada, and wait for it.....Belize! Whatever legitimate reasons there are for this agreement with Belize, this was a direct dig at the Conservatives, particularly their deputy chair Lord Ashcroft, as he followed it with a comment on how long it had taken to release Ashcroft's tax information.

This was playing to the crowd, and provided a bit of light relief in what was always going to be a very downbeat budget statement. However, Alistair Darling is not anywhere near as theatrical as Gordon Brown was when delivering these. He has a quieter, less animated style, which suited very well the circumstances surrounding the 2010 budget.

But, overall the budget was designed to appeal to all sectors of the economy. There were ideas to extend the funding for training for the unemployed. To encourage universities to create an extra 20,000 places, particularly in technological and scientific disciplines, including mathematics. Perhaps an attempt in the long term to plug the shortage in qualified maths teachers. He announced that there would be reductions in taxes for small and medium sized businesses, with some not paying rates at all. Mr Darling also brought in measures to encourage investment by doubling allowances. He sought to build on measures already announced last December in the health service, such as cancer checks,and education with catch up tuition in maths and English for 7-11 year olds.

But because of the need to tackle the deficit, it was savings which were the real area of interest. The Chancellor talked much about efficiency, and how much had already been done in various departments. He told of how £26.5 billion had already been implemented, with a further £11 billion to be identified. Savings were also to be made by moving civil servants from London to less expensive areas of the country. This is a very good move, but probably something that should have been done, by any government many years ago.

For many weeks, and months, now the Conservatives have been saying that Britain must start dealing with the deficit much sooner, whilst the Government has said that to do so too soon would harm the economy. Indeed, many organisations such as the IMF and the World Bank broadly agree with this view, though they would also say that deeper cuts in services should be made.

The IMF in a recent report said, "For the global economy, with the exception of some countries, current conditions do not justify a significant rolling back of macro­economic stimulus or financial policies in 2010. The recovery remains sluggish compared with past standards, at least in the advanced economies." This appears to support the Government's stance that starting to introduce cuts too soon would jeopardise the recovery.

There were letters recently to newspapers from economists giving different points of view, which only really proved the old mantra that if you put two economists in a room you get two opinions, unless one is Keynes then you get three.

However, the public despite many doubts, do not seem overly enthusiastic about the plan to make immediate cuts, and opinion from the global financial institutions tends to countenance against it. Their attacks on policy regarding the deficit having failed, the Tories have therefore switched it to the debt. This is the difference between what the government collects in taxes, and what it spends, and exists regardless of whether there is a recession. However, its size is affected by this, and whilst it currently is 54% of Gross Domestic Product (basically how much money the economy makes), and is predicted to rise to 75% by 2013-14.

Whilst this may still be lower than our major competitors, in the end it is still an issue that needs to be tackled in the long term. When Labour took office in 1997 the debt stood at 43%, so during the long boom, something should really have been done to reduce it. No matter how well things went in the United Kingdom, there would always be events outside that would affect us, even if not on the scale of current crisis.

There are always going to be fundamental differences between the Labour and Conservative parties regarding the role of the state. Alistair Darling summed up the Labour view very well yesterday, "At the heart of our decisions is a belief that Government should not stand aside, but instead help people and business achieve their ambitions. " This is very important, and explains in a simple phrase the different approaches the parties take. Mr Darling then emphasised that only governments have the ability to act in these situations, as well as a responsibility for the good of the British economy.

One of the crucial differences between the parties is in the area of regulation, especially of the banking and financial systems. It will be argued about for years, but the rampant deregulation that occurred in Britain and the US in the 1980s, contributed significantly to the crisis. There is certainly a taste for tighter regulation of financial institutions in the post-crisis world, something which the Conservatives will need to adapt to. A classic liberal party, the free market is very important to them, and the thought of having to bring in tighter regulation will be a hard decision.

Throughout large chunks of the Chancellor's speech, the opposition sat stony-faced. They burst into life on a couple of occasions, when policies they had previously advocated were taken up, such as the removal of stamp duty for two years for first time buyer up to £250,000, which was fair. But overall, they did not react to the main points. Although Oliver Letwin found the mention of Belize very amusing.

Alistair Darling did revise down slightly his growth predictions, bringing them in line with those of the Bank of England. Many commentators say that this is too optimistic, and whilst I am not in a position to comment, if the Bank is expecting growth to around 3%, then what information do the others have they don't?

So what does the budget really mean for Britain? In the end, it was about setting out what the priorities are for a continuing Labour administration, and how different they would be if the Conservatives take power following the election. It was designed to appeal to both long-term party supporters, with the taxes on the better off, and continuing help for pensioners, but also those who were attracted to 'New Labour' project. These included tax breaks for small businesses, the games sector which has grown so substantially, and to encourage closer links between business and universities.

Alistair Darling was at pains to emphasise the way the Conservatives had opposed the bail out of the banks. But, let's be fair here, in that although they did at first, they did come round. But it does seem strange that they have been so poor at defending themselves, which leads you to think their positional change was more political than persuaded, as by and large the public supported the idea.

As a supporter of the Labour government I believe this budget was a good one for Britain's future, and will help the recovery going whilst it is still in its early stages. It doesn't answer all the problems facing Britain. There is still the problem of the debt to be dealt with, and it is reliant on a lot of things that are currently uncertain. Such as the pace of growth, and future tax revenues if unemployment continues to fall, and retail sales maintaining improvement.

More detail now on where cuts will need to be made might well have been better, as it would have easily dealt with these accusations. Although the Chancellor did concede today that they would be very deep, comparing with those made in the 1980s. The Conservatives have yet to say where immediate cuts will be made, and they are now in a difficult position. They have constantly said their cuts would be deeper than Labour's, but now have to decide, whether to take the plunge and say that they will make the deepest ever. Or stick to the risky strategy of not giving detail until after the election, if they win.

The Chancellor has said that the detail will emerge in the autumn spending review, which the government can probably just about get away with. The Conservatives are stuck with the problem of whether the public are prepared to take a risk on electing a party, that does not seem to have a firm economic policy. This was probably part of Alistair Darling's thinking. Forcing them into a corner where a decision needs to be made.

The final budget of the parliament over, the Chancellor can feel satisfied with what he did. There were no fireworks, and it may be dependent on a number of uncertain factors, but it was a budget designed to enable a stable and steady recovery to be maintained.