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George Osborne and Mark Carney issue pre-budget economy alerts George Osborne and Mark Carney issue pre-budget economy alerts
(35 minutes later)
The chancellor and the governor of the Bank of England have issued separate warnings on the eve of the budget that difficult decisions lie ahead if Britain is to secure its objective of a resilient economy.The chancellor and the governor of the Bank of England have issued separate warnings on the eve of the budget that difficult decisions lie ahead if Britain is to secure its objective of a resilient economy.
In a budget expected to be replete with pre-election messages tested by the Conservative election strategist Lynton Crosby, George Osborne will claim he is presenting a budget for economic security.In a budget expected to be replete with pre-election messages tested by the Conservative election strategist Lynton Crosby, George Osborne will claim he is presenting a budget for economic security.
The chancellor is expected to point out that he is still only halfway through the economic retrenchment programme started in 2010 – and, in an eye-catching distraction, will announce plans to replace the existing round gold £1 coin with a 12-sided bi-metallic design.The chancellor is expected to point out that he is still only halfway through the economic retrenchment programme started in 2010 – and, in an eye-catching distraction, will announce plans to replace the existing round gold £1 coin with a 12-sided bi-metallic design.
There was also a growing suspicion Osborne had managed to hold back one large tax cut to unveil during his speech.
In a bid to set the broad political tone for the budget, the penultimate financial statement before next year's general election, a Treasury source said: "As a country we have held our nerve; the plan is working. But the job is far from done. Britain is still borrowing too much."In a bid to set the broad political tone for the budget, the penultimate financial statement before next year's general election, a Treasury source said: "As a country we have held our nerve; the plan is working. But the job is far from done. Britain is still borrowing too much."
The Bank of England governor, Mark Carney, said it "did not take a genius" to see that a long period of low interest rates created similar risks to those that led to Britain's deepest post-war recessions and said the Bank had to focus on more than keeping inflation low, a goal he said had become a "dangerous distraction".The Bank of England governor, Mark Carney, said it "did not take a genius" to see that a long period of low interest rates created similar risks to those that led to Britain's deepest post-war recessions and said the Bank had to focus on more than keeping inflation low, a goal he said had become a "dangerous distraction".
He said the old model "failed to recognise that financial stability is as important an objective of macroeconomic policy as price stability, and it downplayed the inter-relationships between the two".He said the old model "failed to recognise that financial stability is as important an objective of macroeconomic policy as price stability, and it downplayed the inter-relationships between the two".
Carney warned that the pursuit of price stability could lead to the gradual build-up of financial vulnerability through its effect on the willingness to take risks.Carney warned that the pursuit of price stability could lead to the gradual build-up of financial vulnerability through its effect on the willingness to take risks.
Gordon Brown gave the Bank control over interest rates when he became chancellor in 1997 but stripped it of much of its power to supervise the City by simultaneously setting up the Financial Services Authority. Gordon Brown gave the Bank control over interest rates when he became chancellor in 1997 but stripped it of much of its power to supervise the City by simultaneously setting up the Financial Services Authority. By contrast, Osborne has given the Bank a range of new powers, including strategic oversight of the City and supervision of individual banks – a decision praised by Carney on Tuesday night.
By contrast Osborne has given the Bank a range of new powers, including strategic oversight of the City and supervision of individual banks – a decision praised by Carney on Tuesday night.
As for Osborne, pre-budget speculation has focused on whether he will put his slim spare resources on the low paid by raising personal tax allowances or instead help those better off by raising the 40p tax threshold.As for Osborne, pre-budget speculation has focused on whether he will put his slim spare resources on the low paid by raising personal tax allowances or instead help those better off by raising the 40p tax threshold.
Osborne has been under effective pressure from the Liberal Democrats to raise the personal allowance to £10,500 from April 2015, a £1.4bn a year move that will take another 200,000 out of paying income tax, adding to the 5m earners who do not pay tax. Three quarters of the cash gains from this change will go to the top half of the income distribution. Osborne has been under effective pressure from the Liberal Democrats to raise the personal allowance to £10,500 from April 2015, a £1.4bn-a-year move that will take another 200,000 out of paying income tax, adding to the 5m earners who do not pay tax. Three quarters of the cash gains from this change will go to the top half of the income distribution.
Tory backbenchers led by former chancellor Lord Lamont have pressed for the threshold at which the 40p rate of tax applies to be raised to £43,590, removing roughly 350,000 tax payers from the higher rate – and more significantly helping 5m top-rate tax payers who would pay a reduced amount of their income at 40p.Tory backbenchers led by former chancellor Lord Lamont have pressed for the threshold at which the 40p rate of tax applies to be raised to £43,590, removing roughly 350,000 tax payers from the higher rate – and more significantly helping 5m top-rate tax payers who would pay a reduced amount of their income at 40p.
Osborne is expecting the Office for Budget Responsibility (OBR) to revise its 2014 growth figures from 2.4% to around 2.7%, but growth is expected to slow in the two years thereafter, giving Labour a chance to claim the recovery is not embedded.Osborne is expecting the Office for Budget Responsibility (OBR) to revise its 2014 growth figures from 2.4% to around 2.7%, but growth is expected to slow in the two years thereafter, giving Labour a chance to claim the recovery is not embedded.
Independent forecasters have pointed to the government achieving a modest surplus of £5bn by 2019 – £3bn higher than the OBR's December forecast.Independent forecasters have pointed to the government achieving a modest surplus of £5bn by 2019 – £3bn higher than the OBR's December forecast.
Labour countered that Osborne wanted to take credit for increasing the personal allowance, but hoped voters forget his 24 Tory tax rises including the VAT hike. Labour countered that Osborne wanted to take credit for increasing the personal allowance, but hoped voters would forget his 24 Tory tax rises including the VAT hike.
Ahead of the big decisions the Treasury provided a populist distraction, revealing that it will introduce a new £1 coin, being billed as an anti-euro security measure.Ahead of the big decisions the Treasury provided a populist distraction, revealing that it will introduce a new £1 coin, being billed as an anti-euro security measure.
The proposed £1 coin design is the same shape as the old 12-sided three pence piece or "threepenny bit", a coin that can be traced back in England to the 16th century and the reign of King Edward VI, but was finally phased out with decimalisation in 1971.The proposed £1 coin design is the same shape as the old 12-sided three pence piece or "threepenny bit", a coin that can be traced back in England to the 16th century and the reign of King Edward VI, but was finally phased out with decimalisation in 1971.
The new coin is clearly distinguishable from the euro and will come into force in 2017. The change has been forced on ministers by Royal Mint estimates that about 3% of all £1 coins – £45m – are now forgeries. In the past few years about 2m counterfeit £1 coins have been removed from circulation.The new coin is clearly distinguishable from the euro and will come into force in 2017. The change has been forced on ministers by Royal Mint estimates that about 3% of all £1 coins – £45m – are now forgeries. In the past few years about 2m counterfeit £1 coins have been removed from circulation.
The budget will contain a variety of crowd pleasing hand-outs including a further tranche of £100m cash for charities derived from fines imposed on banks due to the Libor scandal. The budget will contain a variety of crowd pleasing handouts, including a further tranche of £100m cash for charities derived from fines imposed on banks due to the Libor scandal.
Osborne is also committing £20m over the next two years to help protect Britain's cathedrals. The Treasury justifies the grants on the basis cathedrals will be a focal point for local and national remembrance during the commemoration of the centenary of first world war. The Church of England has predicted a £87m repair funding shortfall over the next five years.Osborne is also committing £20m over the next two years to help protect Britain's cathedrals. The Treasury justifies the grants on the basis cathedrals will be a focal point for local and national remembrance during the commemoration of the centenary of first world war. The Church of England has predicted a £87m repair funding shortfall over the next five years.
A further 40,000 families in the government's Troubled Families programme are also expected to get support one year earlier than planned. A further 40,000 families in the government's Troubled Families programme are also expected to get support one year earlier than planned. Louise Casey, head of the £450m programme launched in 2012, claims to be on track at its halfway stage to "turn around the lives of 120,000 families with multiple problems" – although some critics including the Public Accounts Committee have challenged this claim.
Louise Casey, head of the £450m programme launched in 2012, claims to be on track at its half way stage to "turn around the lives of 120,000 families with multiple problems" – although some critics including the Public Accounts Committee have challenged this claim.In a ministerial vote of confidence for the scheme, the budget will announce successful local councils will be entitled to bid to tackle an extra 40,000 families in 2014-15, a year earlier than previously planned. In a ministerial vote of confidence for the scheme, the budget will announce successful local councils will be entitled to bid to tackle an extra 40,000 families in 2014-15, a year earlier than previously planned.
In a boost for the Treasury, the Social Market Foundation has produced evidence showing working households in the middle 20% – the 40th-60th percentile – have done well from the brink of the down turn in 2007-08 to 2011-12.In a boost for the Treasury, the Social Market Foundation has produced evidence showing working households in the middle 20% – the 40th-60th percentile – have done well from the brink of the down turn in 2007-08 to 2011-12.
It found more than twice as many of them moved up the income distribution into the top 40% compared with those who moved down. Overall two fifths of households in the middle fifth in 2007 were upwardly mobile; the same proportion stayed in the middle.It found more than twice as many of them moved up the income distribution into the top 40% compared with those who moved down. Overall two fifths of households in the middle fifth in 2007 were upwardly mobile; the same proportion stayed in the middle.
The incomes of households now in the middle 20% were higher in 2011 than in 2007, though on the whole the rise was eaten up by inflation.   The incomes of households now in the middle 20% were higher in 2011 than in 2007, though on the whole the rise was eaten up by inflation.