Julian Knight: What the Chancellor gives you, inflation will take away

At last a piece of good news. From this week most people on average or slightly above average salaries will be better off. Why? Because, finally, the raising of income tax personal allowances, announced in May by Chancellor Alistair Darling to head off a Labour backbench rebellion over the scrapping of the 10p tax rate, will come into force.

What this means in practice is that the monthly pay packets of basic-rate taxpayers will see an instant boost of £60 on average and then £10 each month until the end of the tax year in April. Although a rushed, politically expedient measure, the tax cut could give a welcome shot in the arm to the economy and consumers, and boy do we need it!

Friday brought BBC research showing that some foodstuffs have gone up in price by a staggering 40 per cent on top of the onerous increases to energy bills. What's more, the pound's sudden weakness against the dollar – due to the bleak UK economic outlook – has the unfortunate side effect of stopping us feeling the full benefits of the fall in oil prices, as a barrel of oil is priced in dollars.

Sadly, against this backdrop, this week's tax break is going to provide little more than light relief.

Enjoy it while it lasts.

Too quick to repossess

As damp squibs go, the Government's plans to save the housing market seem, at first glance, right up there along with every England football campaign I can remember.

The main headline-grabbing measure was the change to stamp duty – raising the threshold temporarily from £125,000 to £175,000 – which will benefit those few would-be first-time buyers who can actually find a mortgage. What ministers rightly identified is that any halt to the house price slide has to come from the bottom up: the first-time buyers need to come back. However, is it responsible to encourage people to buy when house prices are being routed? It seems a one-way ticket to negative equity, and I can't see anyone with their head screwed on taking them up on the offer.

The truth is the housing market (as we discuss on page 15) is on the cusp of entering the second stage of what has optimistically been called a correction. The next stage will turn the spotlight on the real economy: namely, jobs and growth. According to the OECD, recession is nearly here, which brings unemployment and leaves people unable to pay their mortgages. Repossession and further price falls are inevitable. To head this off, the Government has cut the time people who have lost their jobs have to wait before getting help with their mortgage interest payments from 39 to 13 weeks. This is very welcome and actually much more important long term than the changes to stamp duty.

But will lenders, spooked by recession and further property falls, wait 13 weeks? Some – mainly in the sub-prime sector – are waiting for only a single month's arrears before moving to repossess. For the Government's plans to work, the mortgage industry needs to agree to a stay of three or even six months before going for the nuclear option of repossession. The Council of Mortgage Lenders is looking at a "protocol" for arrears. With the storm clouds gathering, this must be unequivocal, followed by all and finalised pronto.