It must have been a pretty good afternoon for the Chancellor’s political advisers yesterday, and you can imagine the conversation after the Budget speech was over.
“So, how do you think it went?”
“Yeah, pretty good, I thought.”
“That’s the way I saw it, no real problems.”
“Absolutely, Labour didn’t land any real blows.”
“Job done then.”
Except it wasn’t. This morning, they will have woken up to some universally appalling headlines which transformed what had seem to be an OK performance into a cack-handed raid on a group which no sensible politician should ever willingly offend: pensioners.
Regardless of the rights or wrongs of a decision to freeze the allowances of the elderly (and the sums are far from nightmare territory for a group which tends to spend less), this was an amateurish blunder on two levels. The decision to leave it out of the Budget speech and bury it in the Treasury papers was asking for both trouble and comparisons with Gordon Brown, a past master at parliamentary sleight-of-hand.
And putting yourself in a position where you have to justify taking money off people who have no means of working to make it up leaves you painted into a corner. In PR terms, it was dumb.
The money that George Osborne was handing over by increasing the basic allowance had to come from somewhere because he was committed to not increasing borrowing . And numbers from the independent Office for Budgetary Responsibility suggest that while the economy has probably got enough momentum to avoid another recession, it hasn’t yet latched on to significant growth.
So a straight giveaway would have been politically and economically risky.
This is why many business organisations greeted the Budget with a universal “Is that it?”, with disappointment that there were few tangible measures that either removed a burden from business or gave it a chunky opportunity to pitch for.
The cut in Corporation Tax will be welcome, and raises the question of what businesses are going to do with all the money they are sitting on. In an edition built around signs of recovery in the all-important US economy, The Economist suggested that British businesses are sitting on a cumulative cash pile of around £700 billion, so there is a clear opportunity here for some substantial business investment.
So the corporation tax cut can only help give firms more comfort if they decide they are going to start spending some of the money they have stashed.
As for the decision to cut the top tax rate from 50p to 45p next year, I wonder how much difference it will make. If you have gone to the lengths of setting up a tax structure which minimises your exposure to 50p, will you drop it for 45p? There’s a political calculation at work here: the 50p rate which Labour introduced was gesture politics because few experts reckoned it would yield the revenue Labour had suggested – why pay 50p on income when you can take a dividend for less? The Treasury is betting that 45p won’t bring in any less revenue and that it improves the government’s credentials with business.
This was a transitional Budget. Next year’s will be critical because it will influence what happens to our pockets in the two-year run-up to the next election. If the economy avoids further shocks there should be some solid signs that growth is gaining momentum, in which case tax revenues will rise and the Chancellor can start talking about how he intends to use those gains – both in lower taxes and direct investment.
Budgets always come with a mix of cheers and jeers. Place your bets now that one of the biggest jeers on Budget Day in 2013 will be a measure which puts money back in the pockets of pensioners.
Showing posts with label Budget. Show all posts
Showing posts with label Budget. Show all posts
Thursday, 22 March 2012
Wednesday, 21 March 2012
It IS the Budget for Growth...next year
So it’s good news for 330,000 people and good news for 24 million people. But not until next year.
The point to bear in mind about both of these headline grabbing measures is that they won’t cost George Osborne a penny in 2012-13. So he’s effectively trailed next year’s Budget.
The 24 million are the people whose personal allowance will rise substantially next year, putting their tax-free income up to more than £9,200.
The 333,000 are those liable for the 50p top rate of income tax, which will be cut to 45p from April 2013. The line from the Treasury is that the 50p rate isn’t raising any worthwhile revenue, suggesting high earners are taking some income as dividends or not taking it as income at all.
So as I said last night, 45p looks like a more ‘optimimal’ rate – low enough to encourage payment, high enough to yield some decent tax revenue.
And it’s apparently bad news for Nottingham, which didn’t get the cash it hoped for from the Super Connected Cities initiative. It had asked for a comparatively modest sum (around £8m), to fund ultra-high speed broadband embedded in the tracks of the new tram lines.
I don’t think the game is over on that one, though – I suspect the City Council will try to secure the funding from other sources, so watch this space.
The burning question, of course, is whether the headline cut in Corporation tax – which goes down to 24% more or less immediately – will help businesses to put their hands in their pockets and invest.
There’ll be more insights later.
The point to bear in mind about both of these headline grabbing measures is that they won’t cost George Osborne a penny in 2012-13. So he’s effectively trailed next year’s Budget.
The 24 million are the people whose personal allowance will rise substantially next year, putting their tax-free income up to more than £9,200.
The 333,000 are those liable for the 50p top rate of income tax, which will be cut to 45p from April 2013. The line from the Treasury is that the 50p rate isn’t raising any worthwhile revenue, suggesting high earners are taking some income as dividends or not taking it as income at all.
So as I said last night, 45p looks like a more ‘optimimal’ rate – low enough to encourage payment, high enough to yield some decent tax revenue.
And it’s apparently bad news for Nottingham, which didn’t get the cash it hoped for from the Super Connected Cities initiative. It had asked for a comparatively modest sum (around £8m), to fund ultra-high speed broadband embedded in the tracks of the new tram lines.
I don’t think the game is over on that one, though – I suspect the City Council will try to secure the funding from other sources, so watch this space.
The burning question, of course, is whether the headline cut in Corporation tax – which goes down to 24% more or less immediately – will help businesses to put their hands in their pockets and invest.
There’ll be more insights later.
Tuesday, 20 March 2012
It's the Budget for Growth...or is it?
So, it’s a Budget for growth, which maintains the focus on deficit reduction and brought forth a fairer tax system while failing to tackle unemployment, risking a double dip and missing an opportunity to invest for the future.
And that’s before it’s even been delivered.
The political interpretations of what George Osborne will say in his third Budget are well-rehearsed to the point of staleness.
The point to remember about most Budgets, particularly those delivered during any kind of downturn, is that they have to be neutral – in other words, what the Chancellor giveth, he almost certainly hath to take away.
There are three potential exceptions to this rule (though they’re more likely to surface next year, when the Budget is almost certain to be written with an election in mind).
One is better-than-expected government finances allowing some cash to be thrown at a rabbit-out-of-the-hat Budget stunt. Logic suggests this would be directed at low or middle-income people – putting money in your pocket always works. Just don’t expect much of it.
Second is internal Treasury forecasts suggesting that a pick-up in the economy will yield more tax revenue than government scenarios suggest. Cue a decision to ‘invest the proceeds of our strategy’.
Third is a financial mechanism which allows government to effectively step outside its normal financial rules. An example: the decision to take on the liability for the Post Office pension fund will give the government a one-off accounting gain of £28 billion. In this case, it’ll come straight off the deficit...but a cunning politician might view that as £28bn not needed from elsewhere.
Not this year, though?
If the Chancellor goes ahead with the plan to drop the 50% tax rate on earnings over £150,000 to 45% it will be pilloried for robbing the poor to give to the rich.
In all likelihood, he will have settled on an optimum top rate: the 50p rate has yielded hundred of millions in revenue, but an efficient income tax usually delivers billions – suggesting some entrepreneurs have chosen to take income as dividends or not taken it as income at all.
So while 45% sounds like a cut there’s the possibility it will bring similar tax revenue to 50%.
George Osborne – who is established now as a tough decision-maker who doesn’t play to the gallery – seems unlikely to go for too many stunts. The economy isn’t yet stable enough for that
There has to be a growth message in the Budget because that is the quid pro quo for continued business support of deficit cutting.
In Nottingham’s case, we will be looking for an announcement that our city is among those receiving money to invest in super high-speed broadband (to be buried in the tracks of the tram network).
We will be looking, too, for new schemes which give opportunities to bid for funds.
Government is now desperately hoping there will be no further significant economic shocks this year.
Last year, tentative signs of progress were well and truly snuffed out by the eurozone pantomime, which led instead to a focus on negative economic news.
This year, there is a desperate appetite among business to accentuate the positive. They’ve had enough of recession doom-n-gloom.
Over to you, George.
And that’s before it’s even been delivered.
The political interpretations of what George Osborne will say in his third Budget are well-rehearsed to the point of staleness.
The point to remember about most Budgets, particularly those delivered during any kind of downturn, is that they have to be neutral – in other words, what the Chancellor giveth, he almost certainly hath to take away.
There are three potential exceptions to this rule (though they’re more likely to surface next year, when the Budget is almost certain to be written with an election in mind).
One is better-than-expected government finances allowing some cash to be thrown at a rabbit-out-of-the-hat Budget stunt. Logic suggests this would be directed at low or middle-income people – putting money in your pocket always works. Just don’t expect much of it.
Second is internal Treasury forecasts suggesting that a pick-up in the economy will yield more tax revenue than government scenarios suggest. Cue a decision to ‘invest the proceeds of our strategy’.
Third is a financial mechanism which allows government to effectively step outside its normal financial rules. An example: the decision to take on the liability for the Post Office pension fund will give the government a one-off accounting gain of £28 billion. In this case, it’ll come straight off the deficit...but a cunning politician might view that as £28bn not needed from elsewhere.
Not this year, though?
If the Chancellor goes ahead with the plan to drop the 50% tax rate on earnings over £150,000 to 45% it will be pilloried for robbing the poor to give to the rich.
In all likelihood, he will have settled on an optimum top rate: the 50p rate has yielded hundred of millions in revenue, but an efficient income tax usually delivers billions – suggesting some entrepreneurs have chosen to take income as dividends or not taken it as income at all.
So while 45% sounds like a cut there’s the possibility it will bring similar tax revenue to 50%.
George Osborne – who is established now as a tough decision-maker who doesn’t play to the gallery – seems unlikely to go for too many stunts. The economy isn’t yet stable enough for that
There has to be a growth message in the Budget because that is the quid pro quo for continued business support of deficit cutting.
In Nottingham’s case, we will be looking for an announcement that our city is among those receiving money to invest in super high-speed broadband (to be buried in the tracks of the tram network).
We will be looking, too, for new schemes which give opportunities to bid for funds.
Government is now desperately hoping there will be no further significant economic shocks this year.
Last year, tentative signs of progress were well and truly snuffed out by the eurozone pantomime, which led instead to a focus on negative economic news.
This year, there is a desperate appetite among business to accentuate the positive. They’ve had enough of recession doom-n-gloom.
Over to you, George.
Wednesday, 15 February 2012
Unemployment: A look behind the numbers
Two more pieces of economic news today, which will of course be spun like mad by the respective political camps.
You can’t shy away from unemployment however you look at it. A rise to 2.67 million unemployed, or 8.4 per cent of the working population is the highest it’s been for 16 years. As I’ve blogged before, the problem area surrounds youth unemployment, which accounts for 1.04 million of the total.
Beyond the weak economy, the issue there appears to be at least partly a mismatch between what students are coming out of schools and colleges with and what employers are looking for.
It’s worth mentioning that the youth unemployment figure doesn’t mean 1.04 million young people are walking the streets – the number includes more than 307,000 who are in full-time education but registered as looking for work.
Locally, unemployment in the East Midlands bobbed up only slightly to 188,000, or a below average rate of 8.2 per cent. All of these figures are for the three months period to the end of December.
The odd thing for some people will be that the number of people in employment has gone up at the same time as the jobless rate. That isn’t a contradiction – it tells you that the economy is creating jobs, but at a slower rate than the numbers of people registered as available for work. Many of the new opportunities are part-time, though.
Another important clarification here – the rise in the numbers unemployed includes people who have lost jobs and people who are new to the jobs market. So the unemployment issue isn’t a simple conflict between people finding jobs and losing jobs..
Either way, the economy isn’t creating enough new jobs at the moment. The second piece of news suggests that while the unemployment trend isn’t likely to significantly improve in the immediate future, it is unlikely to worsen.
The Bank of England said today that it did not think the UK had fallen into recession again, and that the economy would grow 1.2 per cent this year. It has reached that conclusion on the back of a series of industrial surveys that have pointed to a slightly improving picture for business.
The Bank’s Governor, Sir Mervyn King, isn’t for one moment suggesting that we’re out of the woods and says there may still be occasional dips in activity.
What can we conclude from all this? That there are opportunities for business growth out there, but an uncertain outlook means that cautious businesses will try to exploit them within the bounds of their existing resources.
Same old story, really, and however much the politicians argue about it, it is unlikely government intervention will make a substantial difference. Nevertheless, the rising jobless figure is putting subtle pressure on George Osborne to adopt a growth agenda in next month’s Budget.
You can’t shy away from unemployment however you look at it. A rise to 2.67 million unemployed, or 8.4 per cent of the working population is the highest it’s been for 16 years. As I’ve blogged before, the problem area surrounds youth unemployment, which accounts for 1.04 million of the total.
Beyond the weak economy, the issue there appears to be at least partly a mismatch between what students are coming out of schools and colleges with and what employers are looking for.
It’s worth mentioning that the youth unemployment figure doesn’t mean 1.04 million young people are walking the streets – the number includes more than 307,000 who are in full-time education but registered as looking for work.
Locally, unemployment in the East Midlands bobbed up only slightly to 188,000, or a below average rate of 8.2 per cent. All of these figures are for the three months period to the end of December.
The odd thing for some people will be that the number of people in employment has gone up at the same time as the jobless rate. That isn’t a contradiction – it tells you that the economy is creating jobs, but at a slower rate than the numbers of people registered as available for work. Many of the new opportunities are part-time, though.
Another important clarification here – the rise in the numbers unemployed includes people who have lost jobs and people who are new to the jobs market. So the unemployment issue isn’t a simple conflict between people finding jobs and losing jobs..
Either way, the economy isn’t creating enough new jobs at the moment. The second piece of news suggests that while the unemployment trend isn’t likely to significantly improve in the immediate future, it is unlikely to worsen.
The Bank of England said today that it did not think the UK had fallen into recession again, and that the economy would grow 1.2 per cent this year. It has reached that conclusion on the back of a series of industrial surveys that have pointed to a slightly improving picture for business.
The Bank’s Governor, Sir Mervyn King, isn’t for one moment suggesting that we’re out of the woods and says there may still be occasional dips in activity.
What can we conclude from all this? That there are opportunities for business growth out there, but an uncertain outlook means that cautious businesses will try to exploit them within the bounds of their existing resources.
Same old story, really, and however much the politicians argue about it, it is unlikely government intervention will make a substantial difference. Nevertheless, the rising jobless figure is putting subtle pressure on George Osborne to adopt a growth agenda in next month’s Budget.
Wednesday, 23 March 2011
A late night with George Osborne
Some people sit back and neck decent bottle of plonk. Others watch Waterloo Road (poor souls). I launched into a 130-page document called the The Plan for Growth, produced by those nice people at HM Treasury and the Department for Business, Skills & Innovation.
More fool, me some will say. But since the alternative was the 2011 Budget Red Book, I don’t think I’ve done too badly as far as sticking matchsticks in my eyes goes.
Anyway, enough of the ritual self-pity. The Plan For Growth is one half of yesterday’s Budget, and it offers at least some of the detail which George Osborne’s headline-grabbing Budget Statement didn’t. There are some big, important measures in it, some eye-catching detail, plenty of ifs, buts and maybes. A lot of it matters to anyone who’s in business. I’ll blog separately about Enterprise Zones. So here goes, in no particular order, the rest of it:
PROPERTY DEVELOPMENT: Some public sector land is going to be auctioned off. The Homes & Communities Agency will announce the first tranche shortly, and it’s considering a ‘Build Now, Pay Later’ model in some cases.
WORKERS’ RIGHTS: A plan to extend the Right to Request Time Off for Training to firms with fewer than 250 staff is being scrapped
The Right to Request Flexible Working for parents with children under 17 is being scrapped
PUBLIC SECTOR CONTRACTS: Pre Qualification Questionnaires for firms who want to tender for public sector contracts are being scrapped for work worth less than £100,000.
The Government wants 25% of public sector contracts to go to SMEs (firms with a sub-£25m turnover).
Government also wants to cut the cost of public sector construction and infrastructure by 20% partly through standardised design and new procurement models.
BUSINESS GROWTH INVESTMENT: A Business Angel Co-Investment Fund is going to be set up, probably based around the existing Regional Growth Fund structure, pitched at backing early-stage SMEs with high growth potential. A Business Coaching for Growth service is also going out to tender, offering investment readiness training. One for those GINEM types?
INWARD INVESTMENT: UK Trade & Investment, the government’s international trade agency, will become ‘more entrepreneurial’ by using private sector expertise
There will be a ‘bespoke service’ for key inward investors giving them direct access to ministers and ‘speedy resolution of bureaucratic obstacles to investment’. New help will be given to help small firms trade internationally.
LIFE SCIENCES/SOCIAL CARE: A new Health Research Regulatory Agency will look at streamlining the regulations and cost-effectiveness of clinical trials. It will also strip out regulations ‘never meant for the social care market’ which prevent market entry and flexible services.
CONSTRUCTION: A two-year rolling programme of funding-approved public sector projects will be published to help the construction industry
TOURISM: A £100m campaign, co-funded by the industry, aims to attract 4m more visitors to the UK after 2012. Tourist boards will become smaller, industry-led partnerships with government.
There will be more, and when the Chancellor said his Budget as ‘fiscally neutral’ he was telling you from the start that he’ll take back anything he’s giving away. That's one for the Red Book.
More fool, me some will say. But since the alternative was the 2011 Budget Red Book, I don’t think I’ve done too badly as far as sticking matchsticks in my eyes goes.
Anyway, enough of the ritual self-pity. The Plan For Growth is one half of yesterday’s Budget, and it offers at least some of the detail which George Osborne’s headline-grabbing Budget Statement didn’t. There are some big, important measures in it, some eye-catching detail, plenty of ifs, buts and maybes. A lot of it matters to anyone who’s in business. I’ll blog separately about Enterprise Zones. So here goes, in no particular order, the rest of it:
PROPERTY DEVELOPMENT: Some public sector land is going to be auctioned off. The Homes & Communities Agency will announce the first tranche shortly, and it’s considering a ‘Build Now, Pay Later’ model in some cases.
WORKERS’ RIGHTS: A plan to extend the Right to Request Time Off for Training to firms with fewer than 250 staff is being scrapped
The Right to Request Flexible Working for parents with children under 17 is being scrapped
PUBLIC SECTOR CONTRACTS: Pre Qualification Questionnaires for firms who want to tender for public sector contracts are being scrapped for work worth less than £100,000.
The Government wants 25% of public sector contracts to go to SMEs (firms with a sub-£25m turnover).
Government also wants to cut the cost of public sector construction and infrastructure by 20% partly through standardised design and new procurement models.
BUSINESS GROWTH INVESTMENT: A Business Angel Co-Investment Fund is going to be set up, probably based around the existing Regional Growth Fund structure, pitched at backing early-stage SMEs with high growth potential. A Business Coaching for Growth service is also going out to tender, offering investment readiness training. One for those GINEM types?
INWARD INVESTMENT: UK Trade & Investment, the government’s international trade agency, will become ‘more entrepreneurial’ by using private sector expertise
There will be a ‘bespoke service’ for key inward investors giving them direct access to ministers and ‘speedy resolution of bureaucratic obstacles to investment’. New help will be given to help small firms trade internationally.
LIFE SCIENCES/SOCIAL CARE: A new Health Research Regulatory Agency will look at streamlining the regulations and cost-effectiveness of clinical trials. It will also strip out regulations ‘never meant for the social care market’ which prevent market entry and flexible services.
CONSTRUCTION: A two-year rolling programme of funding-approved public sector projects will be published to help the construction industry
TOURISM: A £100m campaign, co-funded by the industry, aims to attract 4m more visitors to the UK after 2012. Tourist boards will become smaller, industry-led partnerships with government.
There will be more, and when the Chancellor said his Budget as ‘fiscally neutral’ he was telling you from the start that he’ll take back anything he’s giving away. That's one for the Red Book.
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