Budget leaves questions unanswered - IFS

LONDON (Reuters) - Chancellor Alistair Darling’s pre-election Budget “does no harm” but leaves many questions about fiscal consolidation unanswered, the Institute for Fiscal Studies said on Thursday.

Chancellor of the Exchequer, Alistair Darling, returns to 11 Downing Street after delivering the Budget to the House of Commons in central London March 24, 2010. REUTERS/Stefan Wermuth

Darling reduced forecasts for government borrowing on Wednesday due to lower-than-feared unemployment, but the IFS said it would still hit 11.8 percent of GDP for the 12 months to April -- the highest in the G20 group of major economies.

The IFS, which conducts regular non-partisan budgetary analysis, said Darling had largely resisted calls to use lower government borrowing to fund giveaways before a national election widely expected to be held on May 6.

“In a pre-election Budget, perhaps the most we can expect of any Chancellor is that he observe the key tenet of the Hippocratic Oath and ‘above all, do no harm’. Judged against that modest yardstick, the broadly neutral stance of the Budget passes that test,” IFS director Robert Chote said.

“This was ... a ‘treading water’ Budget. Many questions about the size and structure of the fiscal tightening remain to be answered and are unlikely to be answered this side of the general election,” he added, speaking at an IFS presentation.

Britain is widely expected to hold a general election on May 6, and the opposition Conservatives are slightly ahead of Darling’s Labour Party in opinion polls.

The budget showed that the finance ministry now expects to be able to complete the necessary fiscal tightening in seven years rather than eight, but that tightening equivalent to 1.5 percent of GDP remained unexplained, the IFS said.

The government would need to reduce departmental spending by 11.9 percent or 46 billion pounds in real terms by 2014/15, the IFS said.

Because the government and opposition have promised not to cut health, education or overseas aid spending for the next two years, spending in other departments would have to fall by at least 5.3 percent a year to meet this target, the IFS said.

These estimates are broadly in line with forecasts that the IFS gave after Darling’s December pre-Budget report.

But the IFS was highly critical of Darling’s flagship tax measure in the Budget, a two-year moratorium on sales tax for first-time buyers of houses costing under 250,000 pounds to be funded by a permanent increase in the tax on purchases of homes costing over 1 million pounds.

“Stamp duty is a strong contender for the most inefficient tax that we have in this country,” said IFS researcher Stuart Adam.

The tax changes would encourage first-time buyers to rush into purchases of homes as close to the 250,000 pound limit as possible, while discouraging the sale of property costing over 1 million pounds in the long term, Adam said.

Reporting by David Milliken; editing by Patrick Graham