Budgets, ultimately, are always about votes and power. Despite the Labour government banging on about "education, education, education" in the late 90's, the problem is that children do not vote and parent's are less motivated to vote about education. On the other hand, it is the more mature in society that both tend to vote and need healthcare. Having thrown money at the NHS for the past nine years, there comes a point when enough is enough and the resources have to fit the bill.

The reality is of course that the NHS has not produced the results the Government had hoped for, for the very reason that the education system has failed us for the last 40 years.

A poorly educated nation and, in our opinion, a mis-guided and mis-informed population creates all sorts of problems in society be it poor parenting, bad eating habits, low productivity, undesirable social behaviour and of course the expectation that you get something for nothing.

Of course, an awful lot has gone on in education over the last 8 or 9 years and indeed, many of the teaching methods would have been unheard of 20 years ago including the reintroduction of competition, concentration on the basic skills of reading, writing and arithmetic; targets for exam results, better facilities etc and in turn, this is beginning to produce a better informed society which also can see the folly of politicians' manipulation of society without due regard to their reasonable intelligence.

UK plc would, today, be a significantly better, more profitable and healthier place had we concentrated on education at a much earlier stage but luckily we benefit enormously from a migration policy which is absolutely essential to the survival and prosperity of this country as unlike the rest of Europe, our population has remained stable. This has enabled house prices to remain reasonably buoyant, the economy to expand and taxes to remain reasonably competitive. By comparison with our continental European neighbours, UK plc is performing infinitely better with far less social problems but the reality is that we have to compete with more productive economies such as the United States and most importantly, the fact that in a relatively short space of time, Brazil, Russia, India and China, now known as the BRIC nations, will, not only have larger economies than Europe and the United States, but will probably end up being infinitely more productive, vastly more well educated and significantly more successful.

The poor standard of education combined with the dramatic lack of motivation or sense of purpose within a large proportion of our population particularly in our youth, could eventually be the undoing of our relative affluence and sophisticated society. Our wealth is propped up by unjustified and inflated house prices, massive consumer debt and consumption without due regard to natural resources and the environment. The last point of course also being of significant political interest to all parties.

Of course the education system has failed the whole of society in financial services as the majority of the population do not really understand debt and have no comprehension of investment management. This in turn, has led to swathe of mis-selling, scandals in pensions, endowments, mortgages, loans and of course, just as importantly in the sophisticated end of corporate pension schemes, has allowed actuaries to mis-manage pension funds, successive politicians since Barbara Castle to totally misunderstand and mis-represent the State Benefit scheme, which in turn has led to the crisis that currently faces us all.

A lack of proper education as you can see, has afflicted all stratas of society, not just the poor and disadvantaged.

Gordon Brown has really made no new announcements except for the disgraceful taxation of trusts in retrospect. He has quite rightly, laid down the fundamental issues which must be addressed by society and by whichever government is elected in the future. The problem that Gordon Brown has right now is that he is hoping to have the revenue to spend on the promises that he made in the budget, and this is entirely reliant upon continued growth in the economy of UK plc. Here at KMG, we are not at all convinced that this excess capacity exists in the system; be it at domestic level or at a more sophisticated level in corporate expansion, it is desperately difficult to find qualified, intelligent and motivated people to carry out even quite basic tasks. If the economy does not expand, the revenue will not be there to invest in the vital requirements of re-education, in which case this government will find itself increasingly pilloried by society and this will probably then lead to a change of political power. The problem is, that the issues are just the same whoever is running the country.

By reference to numerous budget statements and commentary from KMG over the last 8 or 9 years, we have continued to observe that Gordon Brown has been remarkably fortunate in achieving his objectives albeit by slight of hand and cynical manipulation of the figures. It is our opinion that he is more at risk than he has ever been. For now, all is quiet on the taxation front, so continue to invest but ironically, as you are all aware, a large proportion of your investment portfolio be it in bonds or equities may actually now be invested outside the UK, but this privilege is only available to a relatively small minority of the population that have funds to invest and the opportunities to be taken advantage of.

The issue of trust taxation has taken every one by surprise. Our initial reading suggests that the proposals will be changed or withdrawn as they appear to be completely unjustified, but, until we have studied the small print more carefully, we do not wish to comment or alarm any one unjustifiably.

On a rather more positive note, we welcome the continuation of Individual Savings Account (ISA) legislation as is, for the time being, and we also note that while tax relief for Venture Capital Trusts (VCTs) was widely expected to be slashed, it has been modestly reduced to 30% from 40%, while the total amount of money which can be invested in similarly tax-efficient Enterprise Investment Schemes (EISs) has doubled from £200,000 to £400,000 per annum in an attempt to favour smaller, rapid-growth companies.

We continue to live in interesting times!

Budget 2006 - Commentary