UK News

Insights from the UK and beyond

from The Great Debate UK:

Budget day: Politics not economics

--Sam Hill is Senior UK economist at RBC. The opinions expressed are his own.--

The headlines generated by the forthcoming UK budget are likely to be political rather than economic; the general election is next year. Despite a faster than expected fall in unemployment and inflation, macroeconomic developments since the December autumn statement present limited scope for forecast revisions to government borrowing. But come the post-budget analysis, some of the seemingly esoteric revised economic assumptions may have important consequences for how the budget is perceived politically.

The modest changes we do expect to the economic forecasts would be seen as positive in essence. Small upgrades to the growth outlook should translate into borrowing reductions of  between £3 billion and £6 billion per year throughout the five-year horizon. That would leave the underlying measure of borrowing at £332 billion for the six years to 2018-19, down from £358 billion in the existing forecast from December, which itself represented a significant improvement on last year’s budget.

In these terms the presentation of the budget maths looks, on the face of it, to be a good news story for the government. It can claim deficit reduction is getting back on track. The complication comes though in the assessment that is made by the Office for Budget Responsibility (OBR) about the responsible way to approach tackling the rest of the deficit from here.

The risk for the government is that the OBR’s updated outlook leads to the conclusion that further tax hikes or spending cuts are needed – despite those falls in the overall borrowing forecast. Whether or not this happens depends on how much below its capacity size the OBR thinks the economy is operating, both now and in future. The further below full potential the economy is judged to be, the more of the deficit it is safe to assume will disappear naturally as the economy grows. Conversely, if the OBR say there is no spare capacity, the entire remaining deficit from that point must be dealt with by announcing further policy tightening. This portion of the deficit is the structural deficit.

from The Great Debate UK:

Budget preview: Don’t expect pyrotechnics

--Nick Beecroft is Chairman, Saxo Capital Markets, Saxo Bank. The opinions expressed are his own.--

Those expecting a rivetingly exciting spectacle when the chancellor announces his budget next Wednesday will be in for disappointment, but that doesn’t mean that this won’t be an intensely political budget, given this really represents his last chance to make changes which will be fully appreciated by the electorate by the next general election. Having said this, his room for manoeuvre is limited, and the effect on the overall fiscal balance will be minimal.

from The Great Debate UK:

Budget background: Dark with light patches

--Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.--

Spring has sprung.

The grass has riz.

I wonder when the Budget is….

On 19th March actually or, more importantly in this age of nonstop campaigning, six weeks before the European elections and barely a year away from the general election. Since the 2015 Budget will be too late to affect our wallets before we go to the polls, this is George Osborne’s last chance to reassure us that the economic situation is under control. Will he be able to resist the temptation to give us a reward for our patience through four years of austerity and to reassure us that the misery is nearly over?

from The Great Debate:

Britain’s austerity experiment is faltering

It was the Welsh sage Alan Watkins who remarked that a budget that looked good the day it was delivered to the British Parliament was sure to look terrible a week later, and vice versa. The avalanche of new information dumped by the Treasury is simply too much to grasp at a single sitting, and governments tend to bury bad news in a welter of statistics. And so it proved with finance minister George Osborne’s budget served up last week.

The immediate headlines stressed that rich Brits would pay less income tax – down from 50 percent to 45 percent – but it only took a day before even traditional Conservative cheerleaders like the Daily Mail were condemning Osborne for funding tax breaks for bankers and billionaires by stealing from those living in retirement. The paper’s cover screamed: “Osborne picks the pockets of pensioners.”

from The Great Debate:

Should Obama mimic David Cameron’s austerity?

By Nicholas Wapshott
The opinions expressed are his own.

In medieval times, a key member of a monarch’s retinue was the food taster, a hapless fellow who ate what his master was about to eat. If the taster survived, the food was deemed safe for the king’s consumption. President Obama has a taster of sorts in David Cameron, the British prime minister, who has embarked upon an economic experiment that echoes the recipe of wholesale public spending cuts and tax hikes needed if both sides in Congress are to agree to raising the federal government debt ceiling. How the British economy is faring offers Obama an idea of what a similarly radical policy of cutting and taxing here would mean to the American economy.

Cameron’s election in May 2010 coincided with the start of the Greek debt crisis. The Bank of England governor Mervyn King warned him that the public debt in the UK was so large that Britain, too, might see its lending become impossibly expensive, so Cameron decided that there was no time to lose in putting the fiscal books in order. He decided to slash public spending by 25 per cent over four years and immediately raise value added tax on goods and services from 17.5 to 20 per cent. Such a radical remedy found favor with the rump of British Conservatives who felt that Margaret Thatcher’s free-market, small government, “sound money” policies of the Eighties had not been pressed to their limit. In turn, Thatcher’s prescription to reduce the size of the state derived from her favorite thinker Friedrich Hayek, the author of “The Road to Serfdom,” who believed like many Tea Party supporters that government intervention inevitably leads to tyranny.

What did you think of the 2011 budget?

Photo

BRITAIN-BUDGET/George Osborne has delivered his budget speech for the 2011/12 fiscal year to parliament.

The Chancellor said corporation tax would be cut by two percentage points to 26 percent from April, rather than by just the one point originally planned. A levy on banks would be increased to help pay for it.

from The Great Debate UK:

Thinking outside the budget-shaped box

BRITAIN

- Dave Coplin is national technology editor at Microsoft UK. The opinions expressed are his own.-

The emergency budget was announced recently as a means to tackle the country’s deficit and Britain's current economic situation.

from The Great Debate UK:

VAT rise – is it really that bad?

BRITAIN-BUDGET/

Rachel Mason is public relations manager at Fair Investment Company. The opinions expressed are her own.-

So the new coalition government is putting VAT up from 17.5 percent to 20 percent on January 4 2011 and the country is up in arms, but is it really that bad?

from The Great Debate UK:

Entrepreneurs needed if the UK is going to make up the deficit

BRITAIN-BUDGET/

-Joe White is managing director of Moonfruit.com. The opinions expressed are his own. Join Reuters for a live discussion with guests as UK Chancellor George Osborne makes an emergency budget statement at 12:30 p.m. British time on Tuesday, June 22, 2010.-

The first Tory budget is a critical one. The Treasury and Chancellor George Osborne have been dropping hints for weeks about a big slash in public sector spending in an effort to try and prepare Whitehall for the worst, and to rally the private sector to step in and fill the deficit.

from The Great Debate UK:

Osborne to show no sympathy for middle or high earners

BRITAIN-OSBORNE/

-Nick Earl is partner at chartered financial planners Wardour Partners LLP. The opinions expressed are his own. Join Reuters for a live discussion with guests as UK Chancellor George Osborne makes  an emergency budget statement at 12:30 p.m. British time on Tuesday, June 22, 2010.-

On Tuesday we will hear the first budget from new Chancellor George Osborne.

From the snippets of information we have heard from the Lib-Con coalition camp, I do not anticipate this budget will show much sympathy for middle or high earners.

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