Budgeting For Honesty

That was George Osborne’s 4^th Budget as Chancellor and it was easily my favourite by a long way. There was very little spin, hiding from the truth, false plans or promises. Instead, it was pretty much a realisation that “there is plenty to do” and “recovery was taking longer than hoped”. No kidding.

 

Now, the ‘charitable / sees good in all’ me, applauds the refreshing honesty……but the ‘battle hardened sceptic’ me believes that the evidence was too damning to do anything other than admit guilt your honour. Either way, we now know pretty definitively where we stand economically for the first time in ages due to the lack of political spin. How refreshing. How surprising. 

 

Economy

This time last year Gorgeous George informed us that the economy would grow by 2.0% in 2013 and 2.7% in 2014. These figures haven’t been so much ‘revised’……more slashed, burnt and rethought. The projected figures now show 0.6% in 2013 and 1.8% in 2014. That’s a massive correction……that level of error should be illegal.

 

Anyway, the upshot……by the Chancellor’s admission this will add at least a further 2 years to the grand master plan for economic redemption. In 2010 he made a “promise to the people” of no more than 4 years of tax rises and spending cuts. Well in 2013 he has effectively launched another 4 year plan, 3 years into the current one. That’ll make 7 years then!

 

If you thought the austerity measures have been hard, just consider this……we are only a third of the way through the cuts to reduce the budget deficit. In fact, the borrowing will rise for the next 2 years. Frightening.

 

One small glimmer of light……it looks like we will just avoid going back into recession for the third time officially as Q1 results for 2013 will show that the economy has not contracted further……just. The treble dip looks to have been avoided by the width of a smug Chancellor smile. Luck not judgement.

 

Stimulus 

When you consider the economic backdrop in the UK is one of Public Sector job losses, it is very evident that we need the Private Sector to grow significantly to create the jobs and wealth needed to drag the economy to recovery. It’s only taken 3 years, but No 10 and No 11 Downing Street are now beginning to understand this……with two projects of significant stimulus.

 

1.     Business

The rate of Corporation Tax that must be paid on company profits will reduce to 20% and the level of National Insurance an employer must pay will reduce by £2,000 (a third of businesses will now not pay any tax to employ). There was also news for growing companies that stamp duty will be abolished for equity investment. 

This now gives the UK the lowest tax regime of all the major worldwide economies. This can only be positive news for existing businesses, start-up businesses and foreign investment. Most importantly, this will have a knock on effect of positive job creation.  

And how will this be paid I hear you ask? An increase in the Bank Levy! That’ll be a cheap point earned with the voter……kick the banks when they are down!

 

2.     Housing Market

A ‘Help To Buy’ scheme will be launched that will effectively help to fund the deposits required to get on the housing ladder or to step up a rung. In short, if the house is under £600,000 then the Government will fund a 20% interest free deposit if the buyer funds 5%. They will also provide guarantees to banks for mortgages that have high loan to values. In short, this will see an increase of £130 billion of mortgages being required.

Now this might be a throwback to Thatcher’s ‘Right To Buy’ Scheme in the 1970’s, but the reality is we need a fluid housing market. There are so many jobs and so much financial prosperity attached to housing, this can only be a good thing. This is the sort of initiative that could really make a massive difference to the UK as we have in effect created £130 billion for the housing market. Fingers crossed.

Tax

The Personal Allowance increase will now see all of us being able to earn £10,000 from April 2014 without paying tax. The trade-off will now see 1 million more people being higher rate tax payers due to the ceiling being lowered.

 

Fuel Tax rises planned for September have been cancelled indefinitely, which can only be a good thing for all (that’s 13p in additional duty that has been avoided in the last 2 years).

 

Perhaps the best news for many is that the planned 3p beer duty has been scrapped and a reduction of 1p will now tax place. The masses rejoice.

 

And That Was That

With the exception of the usual energy efficiency incentives and revisions to some annual allowances (ISA, etc), that was that.

 

It is obviously positive that we now truly understand the current state of economic play and the stimulus announced is very welcome. But it was a very negative budget in terms of what was given away. In fact, it was pretty much a non-event.

 

But what else could we expect?

 

The Government is in a straight jacket economically and politically……but did Labour put them in it or did they put themselves in it?

 

The plan for economic redemption continues……