Bill Jamieson: OBR growth cut Budget’s big talking point
Back in the Budget of 2010 the forecast for GDP growth for this year was 2.8 per cent. Then it was cut in the budget last year to 2 per cent. This was further lowered in the December Spending Review to 0.8 per cent. Now it has been lowered still further – to 0.6 per cent. That speaks volumes about the depth of the problems we face – domestic and international – and the inability of the OBR to improve on the UK’s forecasting record.
For 2014 the OBR is forecasting growth of 1.8 per cent - but this is an increase on the 1.5 per cent previously forecast. How much credence can we attach to this, given the forecasting record of the past three years?
The chancellor says we will avoid a triple dip recession this year with growth in the second quarter – the implication being that quarter 1 is a write-off.
It is as dismal as the chancellor’s critics said it would be. He says the Euro zone will continue to be mired in recession, and that the IMF has lowered its global growth forecast. But it is scant comfort for those hoping that after four years of recession/low growth we should surely by now seeing a chink of light.
Patience will be wearing thin. We are now relying more than ever on Bank of England monetary stimulus (more QE) and supply side reforms – still to be announced.
Immediate reaction from business lobbies suggests that chancellor George Osborne has listened to the cacophony of advice from the corporate sector. But with lower growth, higher borrowing and rising debt he had arguably little alternative. This year’s soundbite slogan – “A budget for an aspiration nation” – is pushing it.
However, what business asked for it broadly got.
• Corporation Tax will be cut to 20 per cent , effective from April 2015.
• An extension of the mortgage guarantee scheme targeted at “ second steppers” on the housing ladder – this was a major demand from the house building industry. Homes for Scotland should be well pleased.
• The first £2,000 has been taken off employers’ national insurance. This has been particularly well received by business and should be of notable benefit to the SME sector. Some 450,000 small firms – one third of all employers in the UK - will pay no jobs tax at all, Mr Osborne says.
• Raising the income tax threshold will mean £700 less tax will be paid by working families. This should help household budgets, boost domestic demand and consumer spending. A little.
• Tax reliefs on investment in Aim companies and other measures to encourage equity investment will please the fund management industry.
• New tax reliefs for shale gas tax field development.
• The personal income tax allowance will be increased to £10,000 by next year.
• Scrapping the fuel duty increase well received - but was perhaps the least he could do.
George Osborne has ticked a lot of business boxes. But all this is against a grim economic backcloth with no prospect of the UK economy returning to its trend rate of growth for another two years. The borrowing forecast has gone up, the growth forecast has gone down. Set against this, a net stimulus of £1.6 billion will seem small potatoes.
The chancellor strained every sinew today to make a little sound like a lot. And while the measures he has announced to boost enterprise and investment are well targeted, there is no single measure that can be said to be a game-changer or which will shift the needle on the economic dial.
What we most need to see this year is a bigger contribution to the economy from overseas trade. But with the return of a black shadow over the eurozone as Cyprus erupts over the tripartite austerity plan, a recovery in European export markets cannot safely be counted on. And by the time those higher debts – and higher annual interest charges - sink in, we’ll be needing to sink a few of those cheaper pints to drown our sorrows.