The deficit is two-thirds down but achieving his latest target of a budget surplus by 2019, will require luck as much as judgement. The Office for Budget Responsibility warned that there is only a 55% chance of hitting the 2019 target. The UK might have the fastest growing economy in the G7 group of nations but the global outlook is gloomy and three weaknesses in the UK economy could frustrate the Chancellor’s plans.
The promised increase in the personal tax allowance was reiterated with a staged increase to £11,500 which will be welcomed by low earners. Raising the threshold of the higher income tax rate to £45,000 will similarly be welcomed by middle income earners. It was not welcomed by the Opposition who focused on the £3.5 billion of savings in department spending, including cuts in the benefits to severely disabled people. It remains to be seen whether the electorate view this as another Osborne gaff.
Strategically, important is the Chancellor’s commitment to long term infrastructure projects. These include £60million towards initiating the HS3 rail link between Leeds and Manchester and £80million for planning Crossrail 2 to ease congestion in London. Other measures include £100million to help homeless people to move on from emergency hostels and £10 million for projects that offer refuge to rough sleepers.
Tax support for the oil and gas industry and measures to prevent large companies shifting their profits overseas to escape UK taxation are positive, and drinkers will welcome the freeze on duty for beer, cider and spirits. Similarly freezing fuel duty for a sixth year will please motorists. Cutting business rates for small firms will help them and abolishing Class 2 National Insurance contributions will please the self-employed. Additionally, more funds for flood defences in areas flooded this winter are another positive move.
That said there are three issues that were barely addressed in the Chancellor’s speech, if addressed at all. The first is our poor record on productivity. He mentioned it but offered no thoughts about how to improve it. The second issue stated that the UK has a balance of payments deficit of £17.5billion. We import more than we export and it would have been prudent for the Chancellor to do more to stimulate exports. The third was the economic growth lauded by Mr Osborne depending too much on consumer credit and debt. The current low level of inflation makes it easier for individuals and households to live with debts, but nationally, this is a potential hazard if global recession returns. The Chancellor must be aware of these weaknesses and it is frustrating that he preferred to say and do little or nothing to address them whilst ‘the sun is shining’, to quote his own past criticisms of Gordon Brown’s Chancellorship.
Written by: Miriam Emenike
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