If British chancellor Alistair Darling now occasionally tires of being reminded of his party's erstwhile promise of  "no more boom and bust", he won't thank British accountancy firm Grant Thornton  for sending journalists a bike puncture repair kit.

Billed as "Darling's economic repair kit -- fixes deflation in all business cycles", the marketing gimmick highlights the serious challenge facing Darling as he prepares to deliver his annual budget to parliament on April 22.

Researchers at the non-partisan Institute for Fiscal Studies  say Britain needs to find another 40 billion pounds in savings or higher taxes, equivalent to nearly 3 percent of GDP or £1,200 per family, if it is to balance its budget by the 2015/16 tax year, as Darling promised to do in his October pre-budget report.

IFS Deputy Director Carl Emmerson, who co-wrote the report, told Reuters MacroScope that Darling would have a tough time politically making convincing promises about future tax rises or cuts to government spending, especially as there's a national election due within little over a year.

But doing so could make it easier for Britain to raise the necessary billions from international debt markets, after a scare last month when the Debt Management Office failed to sell all of a 2049 gilt to investors.

It would also allow more scope to announce a slightly bigger fiscal stimulus package at the budget, said Emmerson -- who rejects the idea that the government should start reining back spending or raising taxes in the recession.

(Reuters photo: Pascal Rossignol)

    Alistair Darling may think it’s time for a bit of collective
responsibility, but anyone who thinks Gordon Brown is about to
apologise for Britain’s current economic travails should think
again.

    The prime minister, who loved to boast about abolishing boom
and bust when he ran the Treasury for a decade, is now
contending with the economy shrinking at its fastest pace in
nearly three decades and the prospect of millions out of work.

 The mighty banks that were given free rein to make London
the world’s number one financial centre are now on their knees
and reliant on taxpayer support.

Darling, the man who replaced Brown at the Treasury, now
says it is a time for humility — ministers had a collective
responsibility.

Brown doesn’t seem to think so.

    It’s a global problem, everyone’s in the same boat, he says.

    Asked point blank in the White House Oval Room whether
Darling’s comments amounted to a government apology, Brown just
said: “There has got to be big regulatory change…We’ve learned
from what has happened in these 10 years.”

    That’s probably it for an apology for now.

If there were any questions over who is number two in British Prime Minister Gordon Brown’s cabinet, Davos might have helped clear them up.

While Chancellor of the Exchequer Alistair Darling is giving the annual gathering of global big wigs a miss, business minister Lord Peter Mandelson has found the time to go.

For years Mandelson and Brown weren’t talking, now Mandelson is once again at the heart of everything the Labour Party is plotting.

Darling has been the steady rock always at Gordon’s side during the credit crunch, often taking the flak from the media for the government’s handling of the crisis.

But when it comes to talking to the world’s most powerful decision makers and hob nobbing in an exclusive ski resort, Lord Mandy gets the call.

Here is a guide on what the pre-budget report means for personal taxation by accountancy firm BDO Stoy Hayward.

Income tax - changes to allowances and rates

The basic personal allowance for 2008/09 was increased above inflation from £5,225 to £6,035 as a one off measure to compensate for the loss of the 10 per cent starting tax rate.

For 2009/10 the personal allowance will be increased by £130 above inflation from £6,035 to £6,475. All other allowances, the income limit for age-allowances, the minimum amount of married couple’s allowance and the starting rate limit for savings will be increased in line with inflation.

For 2010/11, the basic personal allowance will be reduced in two stages as follows:

• where an individual’s gross income exceeds £100,000, the allowance will be reduced by £1 for every £2 of income above the limit up to a maximum of 50 per cent of the basic allowance
• where gross income exceeds a second limit of £140,000 the allowance will be  further reduced by £1 for every £2 of income above the limit up to a maximum of the full personal allowance.

There are no changes in respect of the basic and higher rates of tax for 2009/10 and 2010/11. These will remain at 20 per cent and 40 per cent respectively. The basic rate band limit will however be increased by £800 above inflation to £37,400 for 2009/10.

For 2011/12, a new 45 per cent rate will apply to taxable non-savings and savings income above £150,000. As a consequence of this change, a new rate of 37.5 per cent will apply to taxable dividend income above £150,000 thus introducing a third tax rate to be applied to dividends.

These changes will also apply to trusts where the trust rate and dividend trust rate will increase to 45 per cent and 37.5 per cent respectively from 6 April 2011.

How this affects you

By 2011/12, the Income Tax position for those earning less than £100,000 or more than £150,000 will be simple. Those earning less than £100,000 will have a full personal allowances and a top rate of 40 per cent. Those earning more than £150,000 will have no personal allowance and a top rate of 45 per cent. For those earning between these amounts the position will be complicated – the top rate of tax will be 40 per cent but the amount of personal allowance will vary.

Pension schemes

The maximum annual contribution limit will be frozen at £255,000 from 2010/11 to 2015/16.

The lifetime allowance will also be frozen at £1.8m from 2011/12 to 2015/16.

How this affects you

Taxpayers are advised to look at some planning. With careful planning, tax relievable contributions of up to £510,000 or more can be made in a single tax year. Therefore, higher earners may want to defer pension contributions until the higher rates apply after 5 April 2011.

Extension to list of qualifying ISA investments

Under existing ISA regulations, only securities issued by a UK or European Government or by a company which has a share capital can qualify as investments for a stocks and shares ISA.

From 16 December 2008 bonds issues by Multilateral Institutions can also qualify.

Multilateral Institutions are inter-government organisations usually involved in global development work – for example, UNICEF, World Health Organisation, African Development Fund.  Many such institutions issue bonds as part of their funding arrangements and extending the ISA regulations to include such bonds is part of the Government’s international poverty reduction agenda.

A full round-up of BDO Stoy Hayward’s pre-budget analysis can be found here

Newspapers were in no doubt of the significance of the pre-budget report – this was a defining moment in British politics.

New Labour is no more, they announced, and prudence has been blown away by a massive gamble for the hearts and minds of the electorate before the next election.

“The landmark mini-Budget was a pivotal moment which will shape British politics for years ahead,” wrote The Independent. “It presents voters with a stark choice between two very different futures: a European-style social democracy under Labour, in which the better-off pay higher taxes to maintain public services, or a nation of lower taxes and state spending under the Tories.”

The Guardian, in an editorial entitled “Everything Changes,” said Chancellor Alistair Darling had read the last rites for New Labour. “He abandoned, through necessity, the deal Tony Blair and Gordon Brown struck with the electorate a decade ago, that progressive politics could be paid for without overt economic pain.”

“The government,” it said “has found a purpose, which is to tax the rich to help the poor, something it has never dared admit openly before. Old political certainties now lie like timber, uprooted in the storm. An extraordinary history-changing contest has been got underway.”

The Times called it a “Robin Hood style budget” and echoed the theme of Labour returning to its left-wing roots. “When faced with difficult choices in a serious crisis, it has abandoned its new dogmas for old certainties,” the paper wrote. “Opposing the ‘fiscal stimulus’ is perhaps David Cameron’s biggest gamble, given that Britain’s action will be followed by other countries over the next days and weeks.”

Both parties have now hitched their fortunes to the length and depth of the recession, it noted.

The Sun was among the many papers proclaiming the death of New Labour. “In one emergency splurge, a beaming Mr Brown reverted to Old Labour’s natural big government tendency to tax spend and borrow,” it said.

If the gamble fails, Brown will have mortgaged Britain’s future in “an unforgivably reckless budget.”

The Daily Mail called the pre-budget report the most dramatic about-turn in government policy since the 1970s. “Even if the incentives work  -  and there have to be doubts about whether the cut in VAT will trigger spending in our ailing High Streets  -  the truth is that it represents the most monumental gamble by the Chancellor. For it is based on a positively rose-tinted prediction that the economy will start bouncing back by 2010  -  something many experts hugely doubt.”

The Daily Mirror portrayed Brown on its front page as a poker player, holding his cards under the headline “The Gambler.”

“Mr Darling is taking a big chance but the Tories’ do-nothing approach is a non-starter,” it said. “Yesterday was a big moment in post-war politics and the government rose to the challenge.”

Whether the 20 billion pound package of tax cuts and spending stimuli will be enough to see Britain through the next few painful years was a topic of wide debate in the papers but most felt the VAT reduction to 15 from 17.5 percent — a cornerstone of the report — would have little effect.

“The tragedy is that the fiscal stumulus package, led by a small reduction in value added tax, will still fall far short of the desired effect,” wrote the Financial Times. “The UK consumer is now too stunned by the housing crash, stagnant wages and fears of unemployment to be coaxed into resuming the insane credit-fuelled binge of yesteryear.”

Chancellor Alistair Darling has delivered a 20 billion pound fiscal stimulus package to get the nation spending again and mitigate the worst effects of the downturn.

He cut VAT to 15 from 17.5 percent just in time for Christmas shopping – a move he said would put some 12.5 billion pounds in consumers’ pockets over 13 months. Other measures include well-leaked plans to help homeowners, small businesses, parents and pensioners.

But government borrowing will more than double to 78 billion pounds this year and 118 billion next year before starting to come down. Darling says he will bring the public finances back into balance by 2015.

The package now sets in stone the diverging approaches towards the downturn being adopted by the main two parties. Labour is effectively spending its way out of recession, the Conservatives — against the run of most independent economic advice — have opted for caution. Shadow Chancellor George Osborne said the plans amounted to “putting a time bomb,” set to explode in the future, under the nation’s finances.

What do you think? Is this a bold and innovative way to get the economy moving again or a dangerous, debt-fuelled gamble?

Prime Minister Gordon Brown has suggested he will push expansionary fiscal policies to help boost the economy. Brown’s comments were the latest in a series from him and Chancellor Alistair Darling stressing the importance of boosting the economy, which shrank in the third quarter of 2008 for the first time in 16 years and is expected to contract more sharply next year.

Bank of England Governor Mervyn King has also put his weight behind “some fiscal stimulus”, just as the Bank predicted in its quarterly inflation report that the economy would shrink sharply next year.

But what is the way forward - tax cuts or higher public spending?

The dividing line between Brown and Tory leader David Cameron is whether to borrow to fund tax cuts. Cameron has argued that Britain’s deficit is too high to allow further borrowing. Brown says Cameron’s claim that he can pay for his tax cut by savings on welfare benefits isn’t realistic.

Tax cutting is a populist measure and it may be tempting for Brown, who no longer appears to be married to fiscal prudence, to go down that road, not least because of the backlash he faced earlier this year over scrapping the 10 percent tax band.

But there are a number of reasons why tax cutting may not result in a boost to the economy: government borrowing gets dangerously high and will limit the economy’s ability to recover swiftly from a recession, and people may decide to save rather than spend any extra money they might have in their pocket due to tax cuts.

What’s your view - do you think increased public spending will stoke demand, are tax cuts the way forward to boost the economy or should the government go for a mix of both?

They were widely accused of dithering earlier this week but Gordon Brown and Chancellor Alistair Darling have now finally caught up with events and have tried for the first time to overtake them by unveiling a 50-billion pound rescue package for the banks.

The aim is to bolster their balance sheets, increase confidence in them and get them lending again so ordinary financial life can start anew.

Newspapers have generally welcomed the fact that action has finally been taken, though some feel the package on its own is not enough.

Sector analysts have more specific questions about future bank dividends or who will make use of the rescue money.

What do you make of the rescue package? Do you feel more reassured now?

Newspapers generally praised the government move to shore up the banks, saying that whatever the prospects for the success of the “stability and reconstruction plan,” to have done nothing would have been infinitely worse.

They noted how fleeting the effect of the far larger U.S. bank bailout has been so far and called for the UK plan to be accompanied by cuts in interest rates by the Bank of England and concerted action on an international scale.

This weekend’s World Bank/IMF meeting in Washington needs to take a stand-back look at the entire post-war structure of global finance, some suggested.

“This is the right course of action,” the Financial Times  says of the package. “By recapitalising these banks, the government is making a strong statement to the markets that existing British banks will not disappear and will continue to meet their obligations.”

It says the deal must be designed to avoid participating banks appearing to be marked out for vulnerability. All the big banks should be encouraged to use the facility in some form.

The FT calls for the Bank of England to cut rates by at least half a point this week.

The Times thinks only a full point reduction would be enough. “With confidence plummeting, this is the time for bold moves, not incremental changes,” it warned. “In the past year the Bank has continued to play doggedly by the rules at a time when rule books around the world — on competition law, on deficits, on moral hazard — are rightly being ripped up.”

The Independent  sees wider forces at work behind the current liquidity crisis and demanded wider international action to solve it.

“Two tectonic plates are beginning to meet and grind on top of each other,” it says — namely the liquidity crisis and the accelerating pace of recession in nearly all the major Western economies.

“There is simply no point in hoping that individual measures in any one sector or any one country are going to break this visious circle,” it says. “An EU-wide safety net and a scheme to mop up toxic assets is needed. There is a simple message from the past few days: the picemeal won’t do.”

The right-leaning Telegraph and Daily Mail attack the government for what they call dithering in the run-up to Wednesday’s package and demanded assurances about how it will work.

“The government should make explicit what is already implicit — that it will guarantee all bank deposits, businesses as well as private, without limit, for a fixed term, perhaps two years,” says the Telegraph. “No other single measure would do more to restore public confidence in the banks.”

The Mail calls for banks to cut their “outrageous” loan charges to small businesses and to start lending to home-buyers again. “We demand that no City slicker gets another obscene bonus until we get every penny of our money back,” it adds.

The biggest-selling daily, The Sun, says: “This is the only show in town — the alternatives are horrific. All we can do now is hold our breath and hope it works.”

EU leaders went to Paris at the weekend and vowed solemnly to co-operate in their handling of the credit crisis. By Monday all bets were off as different countries either broke ranks or strained at the leash in their desire to protect their own private savers first by offering blanket guarantees.

That spectacle has raised all manner of questions — should there be a continental banking regulator for example, to fill the gap between the various central banks and the global regulators like the IMF? 

For Britain it raises the immediate question of whether the government should move to stop any seepage of funds abroad by guaranteeing all savers’ deposits. At the moment deposits are guaranteed up to 50,000 pounds.

But the issue of guaranteeing savers’ deposits runs alongside the wider question for Chancellor Alistair Darling of whether Britain should bail out its banks in a blanket operation rather than just acting on a case-by-case basis — effectively buying a stake in the strugglers in a part-nationalisation.

The subject is on the agenda for Monday’s meeting of the crisis National Economic Council.

Bank of England governor Mervyn King has warned of the “moral hazard” in saving banks from their own lack of prudence but the alternative is to let them go to the wall and risk a banking crisis infecting the entire economy and, with it, the lives of ordinary people.

What do you think? Does Britain need a massive U.S.-style banking sector bailout?