Financial Preview 18/03/2015: UK General Election 2015 – Budget Special, Thursday 7th May 2015

There were some important revelations this week in the run up to the election, but they were soon swept away come Wednesday afternoon with George Osborne’s 2015 Budget.

With Ed Miliband announcing that he wouldn’t utilise a post-election ‘formal’ coalition with the SNP and that Nigel Farage would step down as leader of UKIP if he doesn’t win his seat, there were some interesting movements looking into the post-election landscape. However, there was only one true focus on the week, and that was the Budget.

Osborne opened proceedings with the usual boasts and bluster, stating that the UK has grown faster than any other major world economy, and that living standards were higher than when they came into office (something Miliband vociferously challenged after the statement, accusing Osborne of using a new measurement to fudge the fact people are worse off), complete with the UK having the highest employment rate in its history.

In terms of more solid content, there was a flurry of data about UK growth and upward revisions. The OBR has Britain’s 2015 GDP is now forecast at 2.5%, then 2.3% between 2016 and 2018 before growing back to 2.4% in 2019. Inflation was revised down due to falling oil and food prices, to 0.2% for 2015 with similar downward revisions for the following three years. The much-discussed ‘wiggle room’, found in the surplus from lower welfare bills and bank share sales, has been committed to reducing the national debt; Osborne actually went as far as claiming that his 2010 debt target has been met. New bank measures will look to raise £5.3 billion, whilst new tax avoidance measures will produce £3.1 billion.



Following the jobs data this morning, this key issue of course got a look in as well. Osborne stated that unemployment should fall to 5.3% by the end of the year, with 80% of the newly created jobs in full time positions, and a national minimum wage of £8 by the end of the decade. However, Labour challenged the Chancellor on this issue, one of the key economic areas where they can try and seize ground due to the issues with wage growth. Miliband accused the Tories of renegading on their promise to raise the minimum wage to £7, and stated that there are now more zero hours contracts than the populations of Glasgow, Leeds and Cardiff combined.

With one eye (or more likely two) on the election, Osborne also tried to negate a few of Labour’s key arguments. The projected surplus at the end of the next parliament has been reduced to £7 billion from the Autumn Statement’s £23 billion, whilst the Chancellor was keen to hammer home the point that state spending will return to 2000 levels, not those of the 1930s, something that Labour pointedly highlighted back in December. Osborne also announced that lifetime pension relief allowance was to be cut from £1.25 million to £ 1 million; a hit to Labour’s planned tuition fees cut, something that Miliband nevertheless committed too in his post-statement response.

There was then a mixture of expected (and a few unexpected) policies aimed at nabbing swing voters whilst securing the Tory’s key ‘grey vote’. As was leaked before the Budget, pensioners will be allowed to cash in their annuities; a move that many worry will cause a backlash for future parliaments if these lump sums are squandered by ill-informed members of the public. There was also the announcement that tax free allowance will be raised to £11000 by 2017, a lovely sound bite for the Tories; however, they failed to highlight the fact that this scheme will cost the next parliament £5.5 billion. Similarly, the introduction of a full flexible ISA, and a ‘Help to Buy’ ISA (effectively a tax cut for first time buyers), will cost the government £800 million a year.

Overall this was a heavily politicised Budget, as expected, that on the surface turned out fairly well for the Conservatives. Many claim that the actual content of a pre-election Budget doesn’t matter, but merely the impression it gives off, and Osborne did a good job of treading the line between emphasising the UK’s strong recovery whilst also stating that the recovery isn’t over. The usual Tory lines over the ‘chaos of the past’ were present, with Osborne calling Britain the ‘comeback country’. Yet Labour did make some strong points in their response, especially the issues over the glaringly absent NHS, the dubious nature of the Tory’s higher living standards claim, and the fact that the jobs situation isn’t quite as rosy as the Tories keep stating. Frustratingly for Labour, however, this election has coincided with a downturn in global inflation due to the oil price crash, and on home soil the supermarket price war, a big boost to the coalition’s current economic figures.

As Andrew Tyrie, chair of the Treasury Select Committee said as the MPs were leaving the chamber, it’s very hard for an opposition leader to respond to the unseen Budget when the economy is bad, let alone when the economy is strong. And Labour will likely suffer due to the nature of the Budget coverage; it’s Osborne’s moment to shine and the focus will largely be on what he said rather than what Labour accuses him of leaving out. What could harm the Tory’s, however, is there insistence that living standards are rising; if this doesn’t ring true with the electorate, then Labour’s claim that the Conservatives are far removed from the public will only gain in legitimacy.

In the post-Budget landscape the outcome of the election remains unclear. In the important General Seats spread, the Conservative have slipped slightly to 280-286 from 281-287, with a big sell off last week being followed by an unsurprisingly flurry of buys ahead of Osborne’s announcement. Labour have also slipped, to 271-277 from 273-279, with the continued glacial pace of either party’s gains hurting Miliband and co. more than the incumbent Tories. The biggest movement was found in the Most Seats spreads: the Conservatives have now grown to 63.6-71.5, whilst Labour has fallen to 28.5-34.8, with Ed Miliband’s insistence that Labour won’t utilise a SNP/Labour coalition hurting the party’s odds.

Check out our regularly updated spreads and fixed odds on the election here: https://sports.spreadex.com/en-GB/spread-betting/Politics/m121