Darling's depressing budget

Alistair Darling's second budget was pretty depressing but it did include bits of good news - especially for ISA savers.

Let's start with the good stuff first.

More money for ISAs

There's been big increase in ISA thresholds. Currently you can put up to £7,200 in an ISA each year, of which up to £3,600 can go into a cash ISA. The chancellor announced today the total limit will jump 41% to £10,200, and the limit for cash ISAs will rise to £5,100.

If you're over 50, you can benefit from the new rules from October 6th this year. Younger people will have to wait until April 6th 2010.

I was really pleased to see these changes. ISAs are a great idea, but the government has been very slow to increase the thresholds since the scheme was launched in 1999. So it's great to see a nice chunky increase now. If you fancy investing in shares when they appear to be cheap, consider investing in an index tracker ISA.

Pensions and property

Pensioners who rely on the Basic State Pension got some good news. The State Pension will increase by at least 2.5% this year regardless of how low inflation falls. And the housing market also received a very modest boost - the stamp duty holiday for homes worth less than £175,000 is being extended until the end of the year.

Grim

Sadly, there's plenty of bad news in the budget. In particular, the figures on government debt are grim. For the tax year 2007/8, the government borrowed a relatively modest £34.6bn, but that figure soared to £90bn last year, and Darling now expects a jump to £175bn for the current year. Optimistically, the chancellor expects a very modest fall to £173bn for 2010/11.

I say 'optimistically' because I fear that Darling's economic forecasts are too upbeat. He said today that the UK economy will contract by 3.5% this year - that sounds reasonable - but his prediction for 2011 doesn't look so good. I'd be very surprised if we see 3.5% growth in 2011 but that is what the chancellor forecasts.

In some ways, I'm more sanguine about government debt than many other commentators, but I accept there is now a risk that financial markets will refuse to fund the government's deficit. In other words, the government won't be able to sell enough gilts. Then we'd have to rely on help from the IMF, massive money creation, or both.

Rising taxes

The government is at least aware of the debt problem and is introducing a new 50% tax rate for those who earn more than £150,000. Pension savers who earn more than £150,000 will also be hit as their tax relief will fall to 20%.

Here are some other tax rises:

•  Fuel duty will rise by 2p in September. Then it will rise by 1p above inflation for the next four years.
•  Alcohol duty will rise by 2% above inflation from midnight tonight. We'll see further rises of 2% above inflation for the next four years.
•  Tobacco duty will also rise by 2% from midnight.

So the 'sinners' amongst us will suffer. As we do in most budgets. Perhaps I'll stop drinking and put the money into an ISA instead.