Budget Review

Almost inevitably debate surrounding the budget is primarily taking place along partisan lines, so here at The Grapevine we thought we’d have a look at it ourselves and provide some balanced commentary.

Obviously one article can’t cover anything, but hopefully this will provide a broad overview of who we feel benefited and a different angle on some of the most contentious issues. Given The Grapevine’s relative lack of economic expertise, we’re going to remain optimistic and hope by and large the Chancellor knows what he’s doing.

There’s 2 broader themes I’d like to touch on briefly before I move on to the bulk of the article

Firstly, corporation tax cut and its political sense. Am I the only one who thinks that this could and probably should have been delayed a few years for political rather than economic reasons. If I was a conservative strategist I’d have wanted this saved till closer to the election, to force Labour to take a stance on it and also firmly position the Conservative’s as the party of business in the run up to the election. Instead Labour will have time to see if the cut has the desired effect and if not you can be sure it will be an attack point, due to the £800 million odd we’ll have lost per year due to the cut. It seems an awfully big gamble when with a bit of long term thinking it could have become a dividing line at the next election.

Secondly, the growth and inflation figures puzzle me. If growth is lower than expected this year, why does this allow for the potential for greater growth in future years? I’m genuinely curious, so answers in the comments please. The inflation figure of just 2.5% next year seems wildly optimistic, seeing as its above 4% this year and we’re only predicting modest growth. Again sticking with the theme of optimism, I’d love both those things to be right, but I’d also prefer for this to be explained to me properly.

Winners:

Business: It’s impossible to deny that this is a budget designed to boost business growth . However, at The Grapevine we’re big fans of optimism and we’d like to believe that George Osborne is right in saying that the cut in corporation tax and incentives offered to business will ultimately do the most to boost growth and set our economy on course. If he’s wrong, we’re pissing away almost a billion a year at a time we can ill afford to, so regardless of political beliefs, lets hope he’s not. Its too easy for the left to score cheap points by saying this is another example of the Conservatives serving the interests of big business instead of the country, but having abandoned Keynes and his theories, we need business to fill the gap and encourage growth. If tax breaks are the best way to do this, so be it.

Motorists: The fuel escalators been scrapped, inflation rises delayed and Osborne even found room for a 1p cut in fuel duty. Best of all for the average motorist, the oil companies are the ones who are being made to pay for all of this. Winners this year, but according to The Times this is likely to be offset by a 6p rise in fuel duty next year, so perhaps only a short term win here.

Local Councils: Nowhere near as significant as the previous entries, but £100 million for pothole repair and £200 million for local railways should help address some of the usual local grievances. Whether it makes up for the freezing of council tax and the revenue lost there is another question, but purely in terms of this budget, they can be considered winners.

Ho-Hum:

Charity: Continuing our theme of optimism and good will, we’d like to believe that the incentive of 10% off estate tax if you donate 10% of your estate to charity will encourage a lot of people to donate to charity. Call me naïve, but it does seem to be a big win for charities, as they seem to have given up relatively little in exchange for what could be a fairly large jump in revenue. I expect someone to burst my bubble over this at some point, but for now I’m clinging to it as a good thing.

Update:  Charities were originally winners, as the above paragraph notes. However, the following somewhat contradictory  links were sent to me this morning and they’ve complicated the situation. I’ll return to the issue in more detail in a follow up piece.

http://www.guardian.co.uk/uk/2011/mar/23/budget-2011-charities-gift-aid-boost

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/8390481/Gift-Aid-changes-to-cost-charities-100m.html

Green causes: The confirmation of extra funding to the Green Investment Bank and its future ability to borrow money off its own back are definitely good things and normally would constitute a win. The pledge that the UK will introduce a carbon price floor for the power sector is also a positive step. However, allowing motorists cheaper fuel prices will do nothing to fuel investment in alternative forms of both fuel and transport. Its not enough to make the Green’s complete losers, but it’s definitely a kick in the teeth.

Losers:

16-24 Year Olds: New apprentice places and work experience schemes are all very well, but there’s still no guarantee of paid work in the long run at the end or for those on work experience paid work at all. Similarly, where was any mention of the promised replacement for EMA or specific measures to address the 20% unemployment amongst our generation.

The Liberal Democrats: Very little of this budget, beyond the rise in personal tax allowance and the Green Investment Bank seems to have anything to do with the party. I’d have expected to see a similar budget from a minority Conservative government. Where are the big initiatives the Lib Dems can point to and say with pride that that is what they are in government to do.