The Chancellor of the Exchequer’s budget last week has received mixed reactions; some business leaders and insiders consider the provisions a step forward, while others are stinging in their criticism of it.
At the dispatch box, George Osborne gave a brave performance. In presenting some optimistic figures, he still revealed that public borrowing is set to rise marginally over the next few year, accompanied by a fall in growth, from 1.2% to 0.6%. After promising in previous years that the deficit is being reduced, and will be gone by 2014/15, it will now be eliminated by 2016/7. This was just the prelude to more government cuts.
Amongst those cuts, a 1% public sector cap on pay will remain. Most government departments will see their budgets cut by 1% each year for two years; education, health and international development budgets will be ring- fenced however. A further financial burden to each department is that
£11.5bn in cuts has been announced for 2015-16.
For the public sector, it is not all doom and gloom. Transport and infrastructure, both public and private, will see an extra £3bn in 2015-16, and will receive in £15bn in total by 2020. This comes after investment in aerospace and related industries was announced. Investment in shale gas exploitation will get tax allowances, and the Midlands pottery industry will be exempt from climate change charges. Mr. Osborne also fully endorsed Lord Heseltine’s proposals plan for a regional fund to stimulate economic growth in the region; this measure is fully supported by the Liberal Democrat coalition partners. On environmental matters, tax incentives were announced for ultra low emission cars.
For the military, reeling after cuts in personnel, projects and future procurement projects in recent years, after praising their courage, Mr Osborne announced that the recommendations of the Armed Forces Pay Review Body would be adopted, bringing with it an exemption from “progression” pay limits. Indeed, Mr Osborne went further, announcing increased funding for Combat Stress, Help for Heroes and similar charities; this would mostly be funded by bank fines from the Libor scandal.
Reflecting the fact that the Bank of England will see new management later this year as Canadian Mark Carney takes over from Sir Mervyn King, the rate of inflation was left at 2%. The Bank of England’s remit is to be altered so it can tackle growth in addition to inflation and currency stability. These measures give Mr. Carney a lot of scope and flexibility when he takes over to implement changes to stimulate the economy.
Gloom aside, Mr. Osborne stated that his budget was in favour of British businesses; and it was. In measures designed to get businesses trading and growing, corporation tax was cut (to 20% from 21%), with tax reliefs for businesses who invested in social enterprises. Government procurement from small to medium businesses (SME’s) is to rise, and stamp duty on certain shares is to be abolished.
The real boost for business was over National Insurance. A new Employment Allowance will cut National Insurance bills for businesses by £2,000, with 450,000 SME’s paying no NAtional Insurance. With the extra money, more staff can be hired, and more money can be invested in growth or procurement strategies.
In a measure designed to stimulate both the property market and first time buyers, yet another government scheme was announced. Government backed interest- free loans, worth up to 20% of the value of new-build properties- will be available, and shared equity schemes will be be expanded. Again government- backed, banks will offer and underpin £130bn of new mortgages. Coming into affect from 2014, these measures are particularly aimed at first time buyers; after previous and similar government interventionist schemes, whether these schemes will in reality stimulate the property market remains to be seen.
As a reminder of recent high profile scandals, tax avoidance and evasion agreements will be signed with other jurisdictions, particularly in the Channel Islands, aiming to get back up to £3bn in taxes. Such matters of overall financial policy aside, families and households will be directly affected by some budget outlines.
Fuel duty- set to rise by 3p in September- will remain the same for now. Beer duty- set to rise by 3p in April- will instead be cut by 1p. An annual rise of 2% in beer linked to inflation will stop, but wine, cider and spirits will still have the same “duty escalator” as before applied, as will tobacco duty, which will rise to 2% this year.
The big break for taxpayers is that the personal allowance (the threshold at which taxpayers start paying tax on earnings) will rise, reaching £10,000 by 2014. For families, the proposed single flat- rate pension of £144 a week will come into force from 2016, a year earlier than originally planed.Additionally, from 2015 a tax relief of 20% will be placed on childcare, up to £6,000 per child.For those who bought Equitable Life policies prior to 1992, and lost money, there will be payments up to £5,000.
The Chancellor was criticised for bringing before Parliament a Budget of “much of the same”. Similar to pat budgets, cuts in public spending were once agin announced. However, this was counterbalanced by measurers designed to boost business, and more efforts to re-energise the property markets. Family and business friendly policies were central to the Budget, and will improve the financial prospects of families and businesses alike when they come into effect.
However, the figures and measures in George Osbornes’s budget show that Britain will be in a deficit and in debt for longer now. The immediate relief provided by some measures in the budget are counterbalanced by the stark reality that Britain’s economic problems will last for longer as some recent economic measures are not working. Stimulating a flagging economy (with European economic worries as a backdrop), reducing the deficit, lowering unemployment, establishing economic security again, and similar will take more time and effort form government and the private sector alike.