“Lots of lobbyists will be tuning into the 2012 Budget hoping to hear the Chancellor give something to their favoured cause.
“But they will be disappointed.
“George Osborne is on record saying that that the days of unfunded giveaways are over. And with both Moody’s and Fitch ratings agencies putting the UK’s prized AAA rating on negative watch, he’s unlikely to sway from that policy now.
“Even though the public finances look like they are in better shape than the Office for Budget Responsibility thought in November, the Chancellor won’t want to take any chances.
“Excluding the help given to financial institutions, public borrowing looks like it will come in well below the OBR’s £127bn forecast. But Mr Osborne is well aware that there are rough times ahead which will affect not just the amount of tax revenue he can expect to receive, but also the amount of welfare payments he will have to make.
“That will leave him with less room for manoeuvre than any undershoot in borrowing might at first suggest.
“Sticking to Plan A for austerity and maintaining fiscal discipline is important for two big reasons.
“First, keeping the markets’ confidence in the UK Government’s solvency, particularly when the eurozone sovereign debt crisis refuses to go away, is essential to ensure that the Government can continue to secure low borrowing rates. And paying less in interest puts the UK onto a faster track to freedom from deficit and economic recovery.
“The second reason is closer to home. By sticking to austerity and fiscal discipline the Chancellor keeps the risk of an early increase in the bank rate low.
“This isn’t trivial. The Bank of England has already said that rates are being kept low because fiscal policy is tight. So if there is a let-up on austerity monetary policy will get tighter. And that is very bad news for the housing and mortgage markets.
“Many households are already in very difficult financial circumstances but are just about managing. That’s why arrears and possessions have remained at such low levels, in spite of the depth of the recession.
“Average mortgage payments are now 30% below their 2007 peak and if rates stay where they are until late 2014 or 2015 they won’t get back to those levels for at least five years. And that's even allowing for some increase in standard variable rates because of higher funding costs.
“If the bank rate rises before then, it will hurt large numbers of households and many will be tipped over the edge. That would lead to another slide in the housing market.
“As for specific policies to support the housing market, don't hold your breath.
“The stamp duty holiday for first-time buyers clearly hasn’t done much and it only benefits those in London and the regions surrounding it. It’s unlikely to be extended.
“And the mansion tax is too much of a political hot potato to be likely to make it into the speech.
“Overall there aren’t likely to be any surprises in the Budget, especially for the housing market.
“But if this is the price we have to pay for a more efficient and stable economy in future, it’s probably worth paying.”
