Yesterday (20th March 2013), the Chancellor of the Exchequer (George Osborne) produced this years budget. Perhaps the most striking aspect is the fact that since his autumn statement, the predicted growth figure for this year has been halved, 1.2% down to 0.6%, with growth prospects in 2014 falling by 0.2% to 1.8%. This surely shows that little, if any progress is being made on getting our economy on the up and achieving sustainable growth.
I think it is important not to get caught up in the politics of the situation so I have asked myself a few questions on the budget; Who is going to most benefit from the budget? and is it actually going to help our economy or could it be described as ‘lukewarm’?
Firstly, the drop in corporation tax to 20% in 2015 will benefit large multinationals and medium sized businesses. This reduction of tax on the profits of businesses operating in the UK will install confidence into the economy and may attract companies to the UK. However, it is still not nearly the best rate in the world, say, compared to Ireland. The ‘rich’ are due to get a little bit richer due to a typical conservative policy; reducing income tax from 50% to 45% on employees earning over £150,000 which starts from next month. Moreover, small businesses will also benefit due to a national insurance contribution to holiday for business worth up to £2,000. So, it is clear that the main benefits of this budget are due to tax reductions. This may satisfy in the short term, but is it enough?
The entire purpose of the budget should be instilling confidence back into the UK economy. Although, this is tough due to the extremely volatile economic conditions occurring in the Eurozone, which has affected us as a country. George has understandably gone about it in a conservative way; the government will spend £3bn a year from 2015-2018 on infrastructure. The Government are also going to offer guarantees from the start of 2014 for three years on £130bn worth of mortgages, along with interest-free loans worth 20% of the value of new homes on properties worth up to £600,000. His intention of this was to increase confidence for first time buyers, but it could go the other way with people investing in a second property. Either way, it will be pumping money back into the economy, helping the circular flow of income, which is vital for the UK to successfully come out of this difficult time. Money drives the economy, and with people currently prone to save due to a lack of confidence, this spending on infrastructure and the housing market improvements may help, but I am sure they are not enough.
Perhaps the most pointless, and quite frankly absurd aspect of this years budget is the reduction of 1p off the price of a pint. Which has been (predictably) criticized by the opposition. Furthermore, the opposition have again, predictably, stated that the Government must do a u-turn on their current policy. Their current policy is one of austerity (spending cuts). In this instance, I agree with Labour. Spending is the best way to kick start our economy, but not on the scale which caused the crisis in the first place. Cutting the deficit is essential, but the coalition has hardly made any progress since they began, which suggests they are either ‘on the wrong path’, or the ‘right path’ does not exist.
Increasing the confidence in businesses to invest and consumers to spend is the best way to kick-start the economy and although the budget has tried to do this, it is unlikely to be enough, in a sense, it is ‘lukewarm’
The next interesting date in terms of the UK economy will be to see if the UK will go into a ‘triple-dip’ recession, which could well be a possibility due to the negative growth figure of -0.3% seen in Q4 of 2012.