By Keith Weir - Analysis
LONDON (Reuters) - The Labour Party, facing an uphill struggle to win an election due by June, announced a populist one-off tax on bank bonuses on Wednesday, saying the proceeds would help the unemployed.
* The levy is expected to raise a relatively modest 550 million pounds but will tap into public anger over big bonuses for bankers who have benefited from huge state bail-outs and central bank support.
* Labour, seeking to rally its core support and portray the Conservatives as the party of the wealthy elite, has already announced plans for a higher 50 percent rate of income tax for top earners on over 150,000 pounds from April.
* Chancellor Alistair Darling said the “biggest burden will fall on those with the broadest shoulders.” His Conservative counterpart George Osborne shot back that Labour was playing class politics and “setting one part of the country against another.”
* Timing of other measures backs the view that Labour will wait until May before calling an election. The state pension will be increased by 2.5 percent from April and a 1.5 percent rise in child and disability benefit kicks in at the same point -- boosting voters’ spending just before a likely poll.
* A painful hike in National Insurance payrolls tax for all but the most modest earners -- to raise an extra 3 billion pounds per year -- does not kick in until April 2011.
* Darling stuck to his forecast of economic growth returning by the turn of the year. Britain will be the last major economy out of recession and evidence of sustained recovery will be needed to restore Labour’s reputation on the economy after the shock of the financial crisis.
* His overall package of measures was fiscally neutral -- neither pumping in or withdrawing money from the economy. Economists said the painful cuts needed to rein in Britain’s record debt would come after the election, no matter who won it. If not, ratings agencies, who have already put the UK on warning notice, may downgrade its credit rating, making it more expensive to borrow and tarnishing its reputation with foreign investors.
* Recession has proved a paradox. Unemployment has risen to around 2.5 million -- the highest for more than a decade -- but low interest rates mean many Britons are hundreds of pounds better off each month because of cheaper mortgage repayments.
* The Conservatives dismissed the budget update as electioneering, saying every family in the country would be paying for years for prime minister’s mistakes.
* Polls in recent weeks have shown Labour closing the gap on the Conservatives, with the lead dipping into single figures in two of them. Anything less than a 10 percent lead for the Conservatives raises the prospect a hung parliament in which no party has an overall majority. That scenario is the one markets fear most as it may leave a government without the authority to enact painful cuts.
* The Conservatives privately play down the significance of the polls, saying they are particularly volatile at this time of year.
Editing by Mike Peacock