Today’s Budget was a restrained affair in comparison to previous years.
There were few eye-catching changes in policy. This was primarily due to declining economic fortunes.
At the time of the 2010 Budget the Office of Budget Responsibility (OBR) forecast growth in 2013 of 2.9 per cent. Today their forecast was 0.6 per cent, almost a fifth of what was originally forecast.
Since 2010 the UK economy is now expected to grow by under 2 per cent up to 2013, whereas such growth had been expected to be over 8 per cent at the time of the 2010 Budget.
This under-performance applies across the board – household consumption growth a quarter of what was expected; business investment growth less than a fifth of what was forecast; net trade barely contributing to growth; and government spending falling rather than rising.
As a result, the UK’s borrowing and debt positions are also worse than expected and further measures are being taken to attempt to bring about a balance between government spending and government tax revenue.
All public spending areas, with the continuing exception of schools, the NHS and international aid face further across-the-board cuts. In part these will fund small giveaways in terms of: an increase in personal tax allowance; more free childcare; extra infrastructure investment; help for house purchasing; lower corporation tax. But this is only part of the picture, by June, further cuts will need to be identified as part of the Spending Review for the year 2015-16.
What has been the impact on Scotland?
For households it will be similar as for UK households.
In terms of Barnett Consequentials, the UK Treasury calculate that there will be a very small net gain of £20 million.
Beyond this, the fuel duty rise still applies, except for beer, which may work against Scottish spirit manufacturers.
For John Swinney’s argument of earlier this week that Scotland would have had a £4.4 billion relative surplus to play with, the news is bad. North Sea revenues are forecast to fall by £4.8 billion, from £11.3 billion in 2011-12 to £6.5 billion in 2012-13, wiping out all of this relative surplus, and more.
Despite today’s tweaks, the big picture behind the Budget remains the same – slow economic growth due to widespread, ongoing, economic problems; high borrowing and still growing debt levels; and deep cuts in capital spend.
The Chancellor has decided to tough it out in the hope that, eventually, this position will turnaround. As the OBR’s initial forecasts from 2010 show, the current position, dependent again on a bounce back in household consumption and business investment, mirrors what was hoped for back then. It remains to be seen where the incentives for these pick ups will come from.