Labour tries to buy a reprieve

Lending Strategy April 2010 | By Christine Toner

The political sniping is reaching fever pitch, the campaigns are underway and the last Budget before the nation makes up its mind has been delivered. In short, election season is well underway.

As voters attempt to wade through the manifestos and work out which party has solid plans and which is offering pies in the sky the three main political parties are preparing for the final battle before the polling stations open for business.

It’s safe to say this has not been an easy term for Labour. Prime Minister Gordon Brown’s leadership ability has been called into question, sometimes through no fault of his own. The country was gripped by a financial crisis few of us saw coming - although whether he should have done is up for debate.

And even as the party in power should be preparing for the big fight some prominent Labourites have chosen to speak out against Brown. Understandably, they are not members of the party any more.

For a while it seemed the Conservatives needed do nothing more than plan their victory party but the MPs’ expenses scandal put paid to that.

The country may have lost faith in Labour but voters seem to doubt whether a party whose members can’t see why a hand-made duck house is not a top priority is a better bet to fix the economy.

Still, while the Tories may have had some slips along the way there’s a lot for Labour to do to regain trust in the country and thus retain power.
In the run-up to last month’s Budget Labour laid out its plans for the future should it retain power.

Perhaps surprisingly, at the crux of Labour’s manifesto is an emphasis on the party’s so-called achievements - surprising as many of the party’s initiatives over the past few years have been lambasted as being ineffective. The much maligned Mortgage Support Scheme is a case in point, with critics quick to point out that only a handful of home owners have actually benefited from it.

Nevertheless, the Labour manifesto leads with its ’key achievements’, citing extra mortgage protection to help families stay in their homes and giving a £145 tax cut to 22 million basic rate taxpayers among these.

For a while it seemed the Conservatives needed do nothing more than plan their victory party but now voters doubt whether a party whose members can’t see why a duck house is not a high priority is a better bet

As chancellor Alastair Darling was at pains to point out in his Pre-Budget Report last year employment and training for young people is taking precedence, with guaranteed work or training for 18 to 24 year olds who have been unemployed for 12 months or more.

Initiatives such as increasing Child Benefit and Child Tax Credit, giving an extra £60 payment to pensioners on top of a rise in the state pension and increasing Pension Credit to a minimum of £130 a week are also heralded as successes.

Interestingly, Labour’s ’achievements’ also include extending the Stamp Duty holiday for properties under £175,000. This holiday came to an end in January despite calls for it to be continued.

Labour’s election manifesto claims the party is ’preparing Britain to seize the opportunities of tomorrow’ and investing now so we are best placed to take advantage of the upturn.

These investments include supporting businesses so they come through the downturn stronger - which is claimed to be important for future economic success - and working with banks to provide loan guarantees to businesses to help them get the credit they need.

The party says that to ease pressure on businesses it will allow them to defer tax payments on a timetable that they can afford.

And the government’s Homeowner Support Scheme is also cited along with the obligatory jab at the Tories.
“In contrast, at a time of recession Tory leader David Cameron’s priority is an Inheritance Tax giveaway of £200,000 to the 3,000 richest estates in the country,” the Labour website crows.

Green issues are ever present with Labour claiming it will strive harder than ever to accelerate the UK’s transformation into a low-carbon economy, benefiting business and the wider economy.

Plans for business
Industry and business play a big part in Labour’s plans, with the need to improve the skills of the workforce and adapt them to the specialist demands of a modern economy cited as a priority.

Labour’s plans were further detailed in the Budget on March 24, most notably a temporary reform of Stamp Duty.

In his last Budget before the election - and just 73 days after Labour ended the Stamp Duty holiday - Darling announced he would double the threshold that makes properties eligible for the levy. First-time buyers will not have to pay the tax on any property under £250,000.

Unsurprisingly, the decision was welcomed by the industry, although far from wholeheartedly.

The Council of Mortgage Lenders says it cautiously welcomes the decision but it warns that there will be practical barriers to effective implementation. It says it would be simpler - although more expensive - to make the new threshold applicable to all purchasers rather than just first-timer buyers.

The CML says so-called first-time buyers typically include a high proportion of people returning to the housing market who have previously owned property but no longer do.

“Yet the guidance note on this initiative says that to qualify the buyer must not have previously acquired a major interest in a residential property anywhere in the world,” says the trade body. “It is not clear how this will be verified.”

The CML estimates that in the coming 12 months there are likely to be 136,000 newly-exempt first-time buyers under the new concession, resulting in foregone revenue of £224m.

The government says that to pay for the initiative Stamp Duty on properties over £1m will be set at 5%. The CML estimates this covers around 10,000 properties which could equate to around £250m in additional revenue.

The trade body’s caution is justified as it reveals some 92% of first-time buyers would have benefited from the move had the decision been made in 2009.

Angela Knight, chief executive of the British Bankers’ Association, says the banking sector approves of the move. “The high street banks currently provide more than two-thirds of all home loans,” she says. “They stand ready to support all buyers including first-time buyers who might benefit from the Stamp Duty exemption for lower cost homes.”

Like the CML, the building societies trade body the Building Societies Association has welcomed the move, but not without adding a note of warning.

“The announcement that first-time buyers will not have to pay Stamp Duty on house purchases up to £250,000 is welcome and will provide assistance to those struggling to get on the housing ladder,” it says.

“But this move alone will not lead to anything like a housing market recovery and it also fails to address the fundamental flaws of Stamp Duty. The current system results in the bunching of trans- actions at prices just below thresholds.

“Stamp Duty needs serious reform and we urge the government to research how the system could be reformed to reduce price distortions,” it adds.

Darling also announced that the government plans to speed up the entry procedures for new banks to increase com- petition in the market.

Darling says new entrants to the market - as well as well-known brands - are expected to stimulate competition in products and services. The Office of Fair Trading is to review barriers to entry in retail banking.

The main problem Labour faces is the Obama effect - across the pond the public was so jaded that the desire for change saw Barrack Obama enter the White House pretty much regardless of his policies

Darling also says the government will move secured loans to under the Financial Services Authority’s remit. While he has not given a timeframe as to when this will happen, this is the first time such a move has been confirmed.

The idea was suggested in the recent Mortgage Market Review but is not set in stone.

Other commitments include the decision to freeze the Inheritance Tax threshold at £325,000 for four years, the fact that the Royal Bank of Scotland and Lloyds Banking Group will be committed to providing a total of £94bn of new business loans and a further £11bn to households, and the news that public sector debt is set to hit 54% of gross domestic product this year, 75% in 2014/15 and then fall back.

All in all it was a Budget focussed on the election rather than tackling problems in the economy.

But the main problem Labour faces in this year’s election is what could be called the Obama effect. Across the pond the public was so jaded with the existing administration that the desire for change carried Barrack Obama to the White House regardless of his policies.

After three of the worst years in economic history and with issues such as Iraq still at the forefront of public consciousness voters here may also be craving change. This will play into the Tories’ hands, but could Labour’s plans be enough to convince people that change is possible without a change of administraLStion? Not long to wait to find out.