Tax increases hit confidence: Impact of Budget measures likely to affect consumer spending, economists fear

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The Independent Online
CONSUMER confidence over household finances has deteriorated sharply following the Budget announcement of tax increases and cuts in public spending, two surveys revealed yesterday.

Conducted by Gallup and PA Cambridge Economics Consultants soon after the 30 November Budget, the surveys confirm the worries of some private economists and of the Treasury itself that consumer spending may be hit by the Budget measures, which take initial effect next April.

Many analysts hope the impact of the tight Budget on consumers will be offset by a further cut in base and mortgage rates, but none is expected until January at the earliest.

Despite the fact that a rate cut is now too late to affect some building society annual review schemes, most societies operating the schemes said they allowed their mortgagees the option of converting to variable rate mortgages to take advantage of a reduction, providing they did not return to an annual scheme for a year.

Halifax Building Society, the country's largest mortgage lender with 1.8 million accounts, said the two-thirds of borrowers on a yearly review could take advantage of another reduction.

A spokesman said: 'At the beginning of April we apply whatever the rate is on 1 February. If it is too late for the annual review, customers can opt for the lower rate. But we do then ask them not to join the annual system for the rest of the year.'

A Nationwide spokesman said 300,000 of his society's 1.2 million borrowers were on an annual review. The review date is 1 January, with new payments beginning in February. Customers can come off the annual review when they like but are not expected to rejoin it for the rest of the year.

In a regular poll taken for the European Commission, Gallup found that despite improving confidence over the economy and employment prospects since November there was a widespread belief that the financial position of private households would worsen. Some 37 per cent of those polled thought their finances would deteriorate against 19 per cent who saw an improvement in the next 12 months. The resulting negative balance of 18 per cent was the lowest since April 1990.

Confidence that now was a good time to make a big purchase fell to its lowest since last December.

PA said that higher taxes and lack of pay increases were the main reasons for increased pessimism among the 1,000 households surveyed. While there was evidence of improved consumption plans for everyday goods, purchase plans for durable goods were subdued. Plans to purchase white goods, furniture and cars had slumped to the lowest point in two years.