This week's Budget was a curate’s egg with a lot in it that is good, some that is bad, and quite radical where the Chancellor had little overall net room for manoeuvre. Correctly, the Chancellor stuck to his deficit reduction programme where keeping our credit worthiness is crucial to our survival. What was lacking was a philosophical (i.e. capitalist) framework although in some areas pragmatism is justified.
- Reducing Corporation Tax
- Raising Personal Allowances
- Public-Private Infrastructure Programme
- Better Export Credit Facilities
- Improvement in EIS/VCT/EMI and more Government loans to help SMEs
- Support for key life services industry
- Not fiddling further with pension saving tax relief
- £140 per week standard State Pension
- North Sea Oil tax reforms
- Next year’s reduction in top rate of income tax to 45%
- Gordon Brown-like picking winners/special schemes costing money but unlikely to achieve much.
- Retrospective tax measures with regard to properties owned by companies – a dangerous precedent
- VAT on historic building repairs
- 7% Stamp Duty on properties over £2m – French-style stealth, wealth tax; won’t raise anything as will reduce transactions; yet more tax on London/South East already subsidising the rest of the UK by £50bn per annum
- Anti-aspirational – London property prices too high because of overseas’ buyers, further prices locals out of market
- Tycoon tax – limiting income tax offsets to £50,000 or 25% of income; potentially disastrous for charities and a “killer” for the big society. If it includes losses on EIS investments, retrospective and will undermine impact of other improvements in EIS
Above all, trying to make political capital out of attacking the wealthy will be a potential disaster for the Conservative Party and capital investment.
In the wider context, the Chancellor spoke of the UK not being left behind by the growing economies of Asia and South America and wanting to make Great Britain an attractive place to do business. We have a long way to go, there are still major deterrents to employing people; little has been done, or is being done, to slash back the debilitating “cancer” of excess regulation. On some fronts the Budget moves cautiously in the right direction, but putting up a sign saying “rich foreigners not welcome” is an error. Above all, economic growth in the UK is dragged down by the excessive public sector. To achieve growth, the private sector has not only to grow itself but has to offset worsening productivity in the public sector. There remains the need to get the public sector well below 40% of GDP where it is still close to 50% – hopefully the targets to achieve 39% by 2017 will be achieved.
There are still masses of waste, duplication, featherbedding, unnecessary quangos, pointless regulation and wasted resources to be cut back and addressed in the public sector. Looking forward, there is no way the UK can be competitive with Asia or Brazil with welfare and NHS expenditure equal to 50% of public spending, effectively squeezing out investment for the future.
Britain has also observed the sclerotic economic growth of continental Europe resulting from over-taxation, excessive regulation and government interference. The reforms of the 1980s and 1990s were in part designed to avoid the same problems spreading to the UK, but over the last decade Britain has joined the club of economic failure. It may not be politically possible domestically or while we remain a member of the EU, but if Britain is to prosper and compete with the rising economies of the world over the next 50 years, far bolder and more radical economic reforms will be needed. The Budget represented a very modest step in the right direction.