Analysis: Don’t expect too much of the money to come your way
January may be the quietest month for gardeners, but not for politicians and economists.
Last month’s whopping £7.75 billion surplus delighted the Chancellor, surprised the economists and saw UK public finances post their biggest surplus in four years.
That put the economy pretty much on track to meet the Treasury’s March year-end spending target. The government set a borrowing target for year to end March of £127bn and, with two months to go, yesterday’s January figure suggests that target could be reached.
Even a repeat of last year’s eye-wateringly awful February and March deficit would leave the full-year borrowing at around £120bn, still nicely under the target. So in the short term this is good; the UK looks competent and in control as compared with the eurozone as it thumbs its nose at ratings agency Moody’s prophecy that the UK’s triple-A credit rating is by no means guaranteed.
However, it may not matter – today the banks aren’t lending, businesses aren’t investing, consumers aren’t consuming and, collectively, this creates neither growth nor jobs. In short, pundits looking to 21 March shouldn’t overexcite themselves. Early rumours wafting north of the Border hint of a budget devoid of multi-billion-pound tax breaks and wholesale increases in public spending.
January’s sparkling performance says more about 2011 than 2012 – and you have also to remember that January is the month when most companies pay their tax. Looking beyond March, the UK’s economic fundamentals remain grim.
As a result, George Osborne is unlikely to jilt austerity in favour of a brief fling with her distant cousin, generosity.
So, with the economic forecast for 2012 particularly challenging, Mr Osborne is more likely to read January’s improvement as a message that his austerity programme is working.
That probably means a Budget focused on stimulating growth, paid for by increases in direct and indirect taxation and a further clampdown on avoidance. A reduction in NIC to boost job creation perhaps? The stamp-duty holiday ends next month.
Might we see a tax on high-end properties and those held offshore to avoid stamp duty entirely? Also widely expected is some move on “overly generous” tax relief for the pension contributions of high earners; and the conclusions of the report on the 50 per cent tax band, politics will triumph over economics and it will probably stay.
The Chancellor may have been £7bn better off last month, but when it is a month from now, don’t expect to see too much of it coming your way.
• Michael McCusker is a tax partner with PwC in Scotland.
Search for a job
Search for a car
Search for a house
Weather for Edinburgh
Thursday 20 June 2013
Temperature: 12 C to 21 C
Wind Speed: 7 mph
Wind direction: South east
Temperature: 11 C to 19 C
Wind Speed: 12 mph
Wind direction: West