Published on The Malta Independent¸ issue 03 April 2011
It was a smiling George Osborne¸ the UK Chancellor of the Exchequer¸ who presented the Coalition budget last week. He faces an uphill climb trying to make do with little cash in the till but¸ notwithstanding this limitation¸ he produced some magic with his figures by lifting the doomsday feeling. One of the magic gestures was cutting corporation tax by an additional percentage point to 26 per cent as of 1 April 2011¸ reducing it further to 23 per cent by 2014 and increasing the bank levy to offset the benefit banks will gain from lower corporation tax.
Some may say this is robbing the rich (read banks and North Sea oil barons) to pay the poor souls who face a second year of austerity measures and job cuts. It is indeed a lesson that our ministry ought to mimic. Why not learn from such wizardly techniques that aim to do more from less? Coalition critics have hailed this budget as a creative one¸ trying to produce more growth and jobs through an elusive Plan for Growth. Pundits expressed their approval¸ particularly the 100¸000 places on a new work experience scheme¸ while there is extra funding to create 40¸000 new apprenticeships for young unemployed. This may look like a drop in the ocean when the unemployed army is reaching the giddy heights of three million.
Another smart move was to finance a drop in fuel prices by charging a supplementary charge on North Sea Oil and gas production. This ranges from 20 per cent to 32 per cent. Will the fine print of the budget be a mirage or will the patient take the bitter medicine and be cured? Nobody knows¸ but at least Osborne said he will create the most competitive tax system in the G20 and encourage greater investment. The hard facts portray a different message¸ as the estimate for UK growth for 2011 has fallen from 2.1 per cent to 1.7 per cent. The independent Office for Budget Responsibility forecasts growth of 1.7 per cent this year¸ followed 2.5 per cent next year¸ 2.9 per cent in 2013¸ 2.9 per cent in 2014 and 2.8 per cent in 2015. Not bad at all¸ when one considers that the OECD forecast is 1.5 per cent for 2011 and 2.0 per cent for 2012. The trouble is that while the economy is expanding at an unpretentious rate¸ inflation has started to gallop¸ reaching five per cent¸ while unemployment will peak this year.
This will bring in further hardships at the grass root level so it is not unimaginable that further social unrest (like that which resulted when student’s fees were increased) will foment later on this year. But with mounting debts¸ how can an ebullient George Osborne conjure up new tricks to balance the books? Unquestionably¸ something has to give.
Even though the UK falls outside the euro rules¸ the Maastricht Treaty mandates a maximum borrowing level of not more than three per cent and public sector net debt not exceeding 60 per cent. The latter is expected to peak at 70.9 per cent of GDP in 2013-14¸ before declining to 70.5 per cent in 2014-15 and 69.1 per cent in 2015-16. And this is provided that the wheels work perfectly as predicted and no global events occur to slow down the show. So who¸ one may ask¸ are the winners in this budget? The answer is not long¸ but to start with one can include those with a steady job who stand to gain about 90p a week from the increase in the personal allowance – not enough to pay for the increase in a pint of beer. Thus one reads that the personal tax allowance is to rise from £7¸475 to more than £8¸105 in April 2012¸ while a simplification exercise