Britain’s defence industry held its annual public relations exercise on Tuesday at London’s swanky Atrium Restaurant in Westminster.

The “charm” offensive –- held under the auspices of trade body the Defence Industries Council (DIC) –- began with executives from BAE Systems, Rolls-Royce and QinetiQ, among others, telling assorted media that the defence industry needs more investment (not less) even during a recession.

The head of Rolls-Royce’s defence and aerospace business went so far as to say that Britain’s armaments sector could “lead us out of recession”, thanks to the jobs it creates and the exports it fuels.

The industry may well employ 300,000 people in Britain and generate an annual turnover of £35 billion but to say it needs more investments — it gets around £38 billion a year from the government — at a time when unemployment is at its highest level for 13 years smacks of greed.

Perhaps the remarks were made as a warning shot to political parties not to cut the annual defence budget at a time when spending is under the microscope.

Next year Britain conducts its first strategic defence review in more than a decade and with a general election due by June 2010, the issue of how to cut a record budget deficit will certainly be one of the central themes.

However, Britain has some 9,000 troops in Afghanistan and critics say a lack of helicopters makes them particularly vulnerable to roadside bombs so perhaps a redistribution of resources is the right move.

After all, 210 British service personnel have been killed in Afghanistan since 2001.

But to flag up the government’s annual spend on education (£88 billion), health (£119 billion) and social protection (£189 billion) as reasons to show how the poor old defence industry needs more cash is surely unrealistic –- and rather tasteless — in the extreme.

- Hugh Robertson is the opposition Conservatives' Olympics spokesman. The views expressed are his own. -

With three years to go, it is remarkable that London 2012 is going so well.

London’s Olympics were launched with a massive government miscalculation that resulted in the budget having to be increased threefold, were based on a plan that required us to build two Terminal 5s in half the time and have had to contend with the worst economic recession in living memory.

Despite this, the construction process remains on time and nearly on budget, the organising committee have raised more than £500 million in sponsorship and our athletes have given London 2012 a considerable boost by winning a record haul of medals in Beijing.

However, among all the plaudits, it is sensible to sound a note of caution.

The construction process is only just over one third complete and much remains to be done to a tight and immoveable deadline. Many of the major operational challenges for The organising committee lie ahead such as balancing the budget, finalising the venues, ticketing and the content of the opening and closing ceremonies. Finally, it is a considerable challenge to get our athletes to replicate, or exceed, their performance in Beijing.

In short, if you were writing a school report, you would probably conclude that London 2012 has started well but much remains to be done. You would also warn against too much self congratulation!

The major outstanding issue is legacy. It is a worry that neither the main stadium nor the broadcast and media centre have key anchor tenants and there has been little progress on delivering the promise, made when we won the bid, to use London 2012 to reengage young people in sport.

This is important for one simple reason. If we transform the area around Stratford but leave no more people enjoying the opportunities available through sport, we will have missed a once in a lifetime opportunity.

--Fay Goddard is chief executive of the Personal Finance Society. The opinions expressed are her own.--

As predicted, Budget 2009 was heavy on figures and forecasts and hard on the highest earners. Unsurprisingly it is the latter that the press has picked up on. We all knew that there would be a new top rate of income tax – though some were taken by surprise at the rate of 50 percent and the speed at which it will be introduced.

This wasn’t the only hit taken by those on big salaries with restrictions on pension tax relief for those on over £150K and personal allowances for those earning over £100K. These changes will be of concern and mean that financial advisers will need to review the position of their affected clients. However, advisers will have breathed a sign of relief as the rumoured removal of all higher rate tax relief on pensions did not materialise.

There was better news though for savers. The rise in ISA limits is a welcome move and will be available immediately for those over 50, with everyone else having to wait until next year. Whilst I assume this is aimed at providing some immediate assistance to those who rely on their savings to generate income, with interest rates so low, the increase will not deliver much benefit. At least some pensioners will also receive additional tax credits though.

Help for families came in the form of increased child tax credit, and for those who lose their job in these troubling times statutory redundancy pay has been increased.

Those looking to buy houses under £175K will continue to benefit from the stamp duty holiday – this was extended by a further six months until the end of the calendar year but there was little else to stimulate the housing market.

In terms of more direct measures there was the ubiquitous raise in alcohol and tobacco duty and also the rise in petrol duty. The VAT rate cut will end in December as announced in last year’s Pre-Budget report and so VAT will revert back to 17.5 percent. None of these will be sufficient to top up the Chancellor’s coffers quickly but could further reduce spending for middle England.

This was certainly a Budget for the times with the Government looking to replace revenues lost in the downturn and as I said prior to the Chancellor’s speech it’s the first step towards universal belt tightening.

Smokers and top earners were clear losers in Britain’s budget this year, as the government hiked taxes on cigarettes and the highest incomes.

But a lucky few must have been cheering in front of their televisions during the 51-minute speech.

Budget-watchers who bet hard cash that the chancellor of the exchequer, Alistair Darling, would wear a grey or blue tie to his address got a welcome bit of stimulus from the budget.

Betting firm Ladbrokes was giving odds of 3/1 and 16/a for a blue and grey, respectively. Perhaps aware of the odds, Darling put on a blue-gray striped one, and Ladbrokes paid out for both colours.

“We thought it was blue at first, but as the hour rolled on we decided that, much like the content of the speech, it was in fact grey,” Ladbrokes spokesman David Williams said.

The real money came with real risk, howerver. If you wagered 20 pounds that Alistair Darling would let loose with the word “depression” during his speech — many thought it too gloomy to say out loud — the return was a cool 320 pounds.

Smaller, but by no means negligible, reutrns were reserved for bets on the words “downturn”, with 4/5 odds, “recovery” at 1/5, and “credit crunch” — still profitable with odds of 3 to 1.

There was no mention at all, however, of the one word that drew more bets than all others put together: “sorry”. Odds that Darling would apologise about the state of the economy, always a long shot, narrowed from 20/1 to 4/1 in the run-up to the speech, the betting firm said.

And for those who take their thrills wherever they can find them, spread betters were offering an over-under spread of 54.5 to 56 minutes for the length of Darling’s speech.

He managed to keep it gonig for 51 minutes this time around, just under a minute longer than last year.

Chancellor Alistair Darling has made his second annual Budget speech to parliament. Among the measures announced to the House were an increase in petrol duty of 2p per litre in September and a 2 percent increase in alcohol and tobacco duties from tonight.

Darling also announced a scrappage scheme offering £2,000 to people trading in cars older than 10 years for a newer vehicle. From next April there will be a new top tax rate of 50 percent for those earning more than 150,000 pounds a year.

Meanwhile, the annual limit on individual savings accounts has been raised to 10,200 pounds and the Stamp Duty holiday on properties sold for less than 175,000 was extended until the end of the year. There was also money for wind farms and an extra 1 billion pounds to help homeowners and the construction industry.

Darling also forecast that the UK economy will shrink by 3.5 percent in 2009, saying “No country could insulate itself from the world downturn.”

David Cameron, leader of the opposition Conservative party, said: “He is planning to borrow 348 billion pounds over the next two years, that is more — over just two years — than every previous government put together, not just every government since World War Two … but since the Bank of England was first founded more than 300 years ago. This budget does not do enough to bring the public finances under control.”

What did you make of the Chancellor’s Budget speech? Will you benefit from any of the measures? What are your thoughts on the increase in fuel, alcohol and tobacco duties? Do you think the scrappage scheme and new tax rate are a good idea? Finally, do you think it will have a positive effect on the UK economy?

--Gerard Lyons is chief economist at Standard Chartered. Any opinions expressed are his own. --

Britain is clearly a Jekyll and Hyde economy. Or that at least is what the Chancellor would like us to believe. The bad news we are now seeing in the economy, public finances and across parts of the financial sector will not last. We are in the Mr Hyde phase. But, don't worry, we will soon be back to the normal Dr Jekyll soon.

The Chancellor believes the recession will end by year end. That is credible. But then he believes recovery will be rapid, and after contracting 3.5 percent in 2009 we will see growth of 1.25 percent in 2010 and 3.5 percent in 2011. This is fantasy, particularly as this rapid rebound is expected to occur not only as the legacy of the debt bust lingers on, but also as fiscal policy is tightened aggressively through significant tax hikes, largely on those on high incomes.

Strong growth, tax increases and efficiency savings are, the Chancellor believes, about to reduce the budget deficit by half over the next four years. I have my doubts. The legacy of this borrowing binge will live on for much longer.

What we saw confirmed today was the UK was returning to high borrowing, high debt and - in our view - much weaker growth than the Government believes. Add in the higher regulation that is likely to hit, and one wonders how the UK will prosper as the shift in the new world economic order, which is already underway, gathers momentum. As we see a further shift in the balance of economic and financial power from the West to the East, to those economies with low taxes and which save and invest, how will the UK be able to prosper?

There were three areas to focus on in the Chancellor's Budget speech:

The first thing to note was how the Chancellor tried to prepare us for the bad news he was about to deliver. It is not our fault he said. The Chancellor had a number of defences: he had already taken measures to help, the downturn was global, all forecasts had been reduced not just his, and as bad as this recession is, he outlined a relatively quick rebound to strong growth, which in turn would allow government borrowing to fall. Robert Louis Stephenson would have been proud.

One could not argue with the Chancellor's opening paragraphs when he highlighted the shocks that have hit in recent years, and the global nature of the financial and economic crisis. Moreover, he used this as justification for the measures already unveiled, claiming credit for the boost he provided in the Pre-Budget Report at the end of last year. He claimed the total support provided would safeguard half a million jobs. And he announced further measures to help employment today.

These measures are to be welcomed, it is vital to keep youth unemployment to a minimum. But even with this, unemployment will rise sharply, and for some time. Although the Chancellor made the best of a bad job in delivering his Budget nothing could hide the poor underlying foundations on which he built his story. The Chancellor believed the economy's underlying strength, in terms of its diversity, flexibility and resilience would allow it to recovery soon. Yet the economy is not only fragile, it is already cracking under the pressure of the debt overhang.

The second focus was that the economic numbers are too optimistic. But one would not have expected anything different. His forecast of -3.5 percent growth for this year and of a recession ending before the year is out are credible. Confidence is a key factor in any recovery, but one wonders whether those who have cut their discretionary spending will feel the urge to go out and spend? I doubt it. And without a rapid recovery in spending, firms will be reluctant to invest. And if the recovery is weaker, debt levels will be higher, and the pressure to curb public spending aggressively will grow. No sooner had the Chancellor sat down, than the IMF released its new forecast for the UK, of -4.1 percent this year and down -0.4% next. We expect -3.7 percent this year and sluggish growth of 0.4 percent next.

Third, the budget numbers. Six months ago the Chancellor was badly out in his projection of where the budget deficit was heading. That needs to be taken on board when you hear the Chancellor's prediction for the fiscal outlook now. Even during the good times, when the economy's growth was more stable and predictable, the Treasury was often out in its predictions on the budget deficit. It only takes government spending and tax revenues to be out slightly for the budget numbers to be far different from those planned.

Thus the fiscal numbers unveiled should be viewed more as a message of hope, rather than a forecast. The budget deficit, the government believes, will peak at £175 billion this fiscal year, stay around that level at £173 billion next, before heading lower to a still high £97 billion by 2013-14. But as the headline numbers fall, the government's net debt will continue to climb, from a ratio of 55.4 percent of GDP now, to 76.2 percent of GDP by 2013-14. What if growth disappoints?

What if tax revenues are hit harder? Even on the upbeat economic views presented today the Government will have to borrow £703 billion over five years. Financial markets will not be convinced that this Budget will return public finances to a sustainable footing, as the Chancellor hopes it will.

Clearly the likelihood of an election next year, and not just the extent of the recession, had a bearing on the actual measures unveiled The Budget provided a stimulus of £5.2 billion to the economy this fiscal year of 2009-10, followed by a small tax hike of £0.1 billion in 2010-11 and a large tax hike of £5.23 billion in 2011-12, with that claw back set to continue in subsequent years.

At the time of the Pre-Budget Report I referred to it as the Good, the Bad and the Ugly: good that the Chancellor was taking timely, targeted and temporary measures to help the economy; bad that he was not doing it from a position of strength; and ugly being the fiscal position he would leave the country with. Today the picture is even uglier than before.

It may not be tax and spend exactly, but it’s definitely tax and borrow.

For the best part of 12 years, Labour has pursued essentially conservative (with a small ‘c’) economic policies, steadily underburdening itself of the ‘fiscally unreliable’ tag that some earlier Labour administrations were (wrongly or rightly) saddled with.

And for most of the past 12 years, as the global economy steadily expanded and Britain’s along with it, with aggregate wealth rising smoothly, Labour looked strong at the helm each time the budget came around.

But since the global economic crisis hit in late 2007,  it has become much harder for the government to keep a tight rein on the fiscal strings as growth has taken a hit, unemployment has risen sharply, and tax receipts have declined. 

Last April’s budget was a tough one for Labour, but Wednesday’s budget may well go down as the one that really showed the government reeling as it tries to keep a grip on the purse strings in some of the most challenging economic circumstances imaginable.

The numbers tell the story and are in some cases eye-bogglingly huge.

Finance minister Alistair Darling says the government will have to borrow 175 billion pounds this year and almost as much next year (173 billion) as it tries to plug a widening gap in its finances. WIth the Debt Management Office already struggling to raise funds (if one recent debt auction is anything to go by), the borrowing requirement could be a very big ask.

At the same time, tax receipts as a proportion of gross domestic product are going to be down, Darling said, and growth is set to contract this year at the fastest rate since World War Two with unemployment edging relentlessly higher.

To try to boost government revenue, Darling has unveiled a new income tax band, although it’s unclear just how much can really be raised from taxing the richest 1-1/2 to 2 percent of the population an ever larger portion of their income.

From next April, those earning more than 150,000 pounds a year will have to pay 50 percent tax, while their benefits allowances will steadily be cut, as they will be for those earning more than 100,000 pounds.

Those new tax policies represent something of a bust for Labour. For 12 years they’ve kept on the right side of business and the wealthy, encouraging entrepreneurship and positioning themselves as a partner with business. But the new top rate of tax suddenly begins to look like a Labour policy of old —  a “tax-the-rich” gambit.

It remains to be seen how the Conservative opposition – now widely expected to win the next election, which has to be called by June 2010 – respond, but on the face of it the high borrowing and higher taxation would seem to play ever more into their hands politically, while threatening them with a dire economic legacy should they win the next election.

For Darling, it may be the best that can be done with an awful hand. Maybe the borrowing can be met, the spending measures announced will have the desired effect, kickstarting economic activity and getting the wheels of commerce turning. Maybe. But it’s a slim chance will little more than a year to go before an election.

Borrowing and taxing may be what’s needed (or the only means available) to try to right the economy in this uncertain time, but it’s unlikely to help Labour’s prospects of holding onto power.

-- Fay Goddard is chief executive of The Personal Finance Society. Any opinions expressed are her own. --

Though it’s a cliche to say that a budget is eagerly awaited you can be forgiven for saying so this time around. This year all eyes and ears will be focused on the Chancellor’s economic figures and forecasts. The big question is how will he balance the books – cut public spending or raise taxes? In the run up to an election cuts are ideal but needs must. What will it mean for personal finances?

One of the big questions being asked is whether Chancellor Alistair Darling will do anything to help the plight of savers. Some of the hardest hit by the drop in interest rates have been pensioners relying on savings generated income. It seems likely they will receive some support with whispers suggesting an increase in the pensioners’ tax allowance but this will do little for the majority affected. There is also speculation that the ISA limit of £7,200 will be raised in an effort to attract more savers. Action savings is a delicate balancing act as the Chancellor is understood not to want to reduce consumer spending in such a way that it slows the recovery.

A new top rate of income tax, as announced in the pre-Budget report, is expected – though whether it remains the same as the 45 percent rate for incomes over £150,000 (effective from 2011) remains to be seen. There are rumours that the threshold could be lower (perhaps £100,000), whereas others have suggested the rate will be higher (50 percent).

Of concern to many financial advisers and their clients is the threatened removal of higher rate tax relief on pensions or any change in policy to the availability of tax free lump sums. We will be watching closely for any amendments in this area.

It is also expected that VAT will be raised once the temporary cut of 2.5 percent ends in December. Some estimates have the new rate between 18 percent and 20 percent.

Other measures almost certainly will include a stimulus to revive the housing market including a continuation of the stamp duty holiday for properties under £175,000 and a mortgage interest deferral scheme.

Historically with budget tax amendments, the devil has been in the detail. The headlines rarely accurately reflect the combined impact on an individual’s personal financial position.

This will certainly not be a Budget of giveaways – more the first step towards further belt tightening…for us all.

All we’ve heard for the past few weeks is how little room there is for Labour to pump more money into the economy to fight the recession.

The increasingly popular — and confident — opposition Conservatives have gained ground by blaming Prime Minister Gordon Brown for turning the public purse into a public hearse.

But there are a few reasons to suspect that when finance minister Alistair Darling steps up to the dispatch box tomorrow, he will deliver another blockbuster life-support package.

Yes, there are inklings of a recovery out there — some experts say we have reached the bottom — but Labour has to make sure this recession is long gone before it can hope to win an election.

And it only has until mid-2010 to wait before that day of reckoning must come.

Brown might be willing to chance his arm with some big spending to reassure the public that job losses will be kept to a minimum and that Labour cares more about ordinary peoples’ lives in the here and now than it does about the budget deficit and government debt markets.

If this is the worst economic crisis for decades, then there is no easy way out of it and the best thing to do is to take whatever action is necessary to bring it to an end and worry about the consequences later.

Respected think tank the National Institute of Economic and Social Research has called for a temporary 30 billion pound stimulus aimed at stuffing employers and employees coffers with
cash.

They say the level of government debt is nowhere near where it was at the end of the Second World War and so there is no real panic about getting it back under control eventually. Yes, it may mean higher taxes and less public spending in the future, but that might be a fair price to pay to avoid mass unemployment and social unrest.

All the indications are that Labour won’t risk the ire of experts and opposition alike with another big stimulus, but the truth is they won’t get a second chance to reduce the severity of the downturn.

Besides all that, something interesting was happening in Westminster on Tuesday.

Rather than hounding the Prime Minister’s office with questions about the Budget, Britain’s press pack were jumping all over an emergency announcement on how rules governing the much-maligned MPs expenses system might be changed.

It wouldn’t be the first time that Brown has put up a smoke screen before delivering a knockout, headline-grabbing blow.

Bumper budgets are a tried and tested vote winner … but that might also be just what the economy needs.

--Gerard Lyons is chief economist at Standard Chartered. The opinions expressed are his own. Lyons will also blog his post-budget thoughts on The Great Debate.--

The outcome of this financial crisis depends on the economic fundamentals, the policy response and confidence. Chancellor Alistair Darling presents this Budget in an environment where the fundamentals are poor, confidence has been shot to pieces and the credibility of policy and his ability to spend any more is being widely questioned.

There are three key areas to focus on in this Budget. First, the Chancellor's economic assessment. Second, his fiscal sums and how he can afford any further help to the economy. Third, his longer-term ambitions, aimed at reducing the budget deficit without killing the recovery whilst winning over the electorate and the markets. It is often said bad things come in threes. On the eve of his Budget, Darling will know that only too well.

First, the economic outlook. The Treasury often views The City's forecasts as being too pessimistic about growth and too optimistic on the budget deficit. This time, the market's growth expectations are terrible, and rightly so. People and companies have cut spending agressively, and the economy looks like it will decline anywhere between 3 percent to 4 percent this year.

Last August, on the eve of the collapse of Lehmans we expected the economy to collapse 2 percent this year. At that time the consensus was expecting growth close to 1percent. Now the market has not only caught up with reality but is erring on the side of caution.

Despite recent talk of green shoots, the economy is still declining. By year-end we may have hit bottom, but in his Budget the Chancellor may have to make clear the recovery, when it comes, will be gradual and drawn out. To be sustained that recovery needs to be built less on debt, borrowing and housing. The problem, of course, is new measures may be announced that do little to ensure a balanced recovery.

Second, the budget numbers. Think of a number, double it, and guess again. Who knows what numbers are being thrown up for the budget deficit by the Treasury's forecasts. A figure around 170 billon pounds is already in the market.

Frivolous spending in the good times led the UK to go into this recession with a large budget deficit. It has since deteriorated as the revenue base has collapsed and government spending risen. If people and firms are not spending, the government has to. If not, the situation will be worse. But this should have been from a position of strength. It wasn't.

Thus the Chancellor has little, if any, room for fiscal manoeuvre. Yet, with the recession deep he will want to do more. Any measures need to be temporary and targeted, and signs are help to construction, housing and the car industry will be announced. All have a political impact and the economic benefit should be clear, helping limit the downside, but at a further fiscal cost.

Third, credibility and confidence. How can the Chancellor ensure the economic and financial reaction is favourable? Well, a realistic read of how bad the present situation is would be a start and then outlining a vision for the future. Whether the electorate believes he has that vision is one thing.

For the markets the Chancellor is, I am afraid to say, in a no-win situation. Damned if he does, damned if he doesn't! Last autumn the Chancellor announced future tax hikes. He is being urged to do more of the same. He shouldn't. The best way to reduce the future budget deficit is to slash public spending and to create the environment for sustained economic growth. Given these constraints, how the Budget is received in Threadneedle Street will be important.

There the Bank of England still has the need and the scope for further monetary stimulus. Despite some fears, inflation is not the problem, growth is, which is why the Chancellor wants to do even more in this Budget. If only his predecessor hadn't spent all that money!