REVISING DOWN the UK’s growth forecast from 2.1 per cent to 1.7 in 2012, Chancellor George Osborne yesterday bowed to the inevitable, admitting that economic recovery would be more sluggish than expected and that deficit reduction would take longer than previously hoped. In his Commons budget speech, he predicted a slight pick-up in growth in 2014-15 but said government borrowing, his top priority, would fall from £146 billion this year to £29 billion in 2015-16, rather than the projected £18 billion, extending his five-year timeframe for eliminating it altogether.
Ahead of his “budget for growth”, Osborne had signalled his preference for a “steady as she goes” package, neither pump priming nor curbing demand. Easing fiscal policy would also push prices up – the rate of inflation rose to 4.4 per cent in February – and might trigger Bank of England moves to raise interest rates. And although there were moderate income tax concessions and populist cuts in fuel tax, paid for by a £2 billion hit on oil companies, the budgetary impact was indeed neutral overall.
Osborne cast it as a budget designed to stimulate private-sector growth and the “march of the makers” instead of using state spending and debt to encourage a recovery. On the supply side – EU partners please note – the chancellor promised a gradual cut over four years of 5 per cent in the UK’s corporate tax rate from 28 per cent, although its effective rate is already 23.2 per cent. The cuts will be funded by an increase in the levy on bank profits and a £1 billion clampdown on tax evasion. He also promised to cut red tape, to create 250,000 more apprenticeship places and to provide funding for 21 more enterprise zones.
Labour’s response was a predictable and oft-repeated assertion that the Tory-Liberal programme was cutting “too far and too fast”, sapping the life out of the economy, “a budget for growth that downgrades the growth forecast”, in leader Ed Miliband’s words.
In truth, however, the budget was a bit of a sideshow. To pay the price for the billions used to rescue the banks and the ailing economy, previously announced measures will in 14 days increase national insurance for millions of people, lift an extra 750,000 people into the higher rate tax bracket and see some tax credits withdrawn, with many families losing £545 per annum. The remorseless pruning of public service numbers and services will continue. And there’s the possibility of a Bank of England interest rise. Tough times across the Irish Sea.