Last year the spending cuts and the tax rises; this year renewal and recovery. That had long been the message offered by the Government in the approach to its second Budget, and the Chancellor, George Osborne was quick to assert the positive outlook of his statement.
This, he announced, was the point at which he planned for the economy to move from “rescue” to “reform and from reform to recovery”. The Budget, he argued, “would put fuel into the tank of the British economy”, even though it would be “fiscally neutral across the period, neither raising tax nor offering giveaways”.
First, however, the less happy news. The Chancellor reported that the Office for Budget Responsibility had revised its growth forecast down to 1.7 per cent for 2011, with growth predicted to be 2.5 per cent in 2012, 2.9 per cent in 2013, 2.9 per cent in 2014 and 2.8 per cent in 2015.
Inflation is expected to hold at between 4 per cent and 5 per cent this year before dropping to 2.5 per cent next year and to 2 per cent in two years’ time. Reduced borrowing, though, is on track for a balanced structural budget, with debt falling as a proportion of GDP by 2015/16. Borrowing to fund the deficit this year is set to come in at £146 billion, which is below target. It is then forecast to fall to £122 billion next year before sliding to £29 billion by 2015/16.
In order to stimulate the recovery, and to reclaim the ground that Britain has lost on its competitors, Mr Osborne set out his ambitions: to make the UK’s tax regime the most competitive among the G20 nations; to coax and encourage innovation and enterprise; to create a balanced economy; and to produce a more skilled workforce.
Perhaps the most eye-catching of his taxation policies was a further reduction, by 1 per cent, in corporation tax, which will now fall to 23 per cent in three years’ time. Fuel duty was also reduced immediately by 1 pence, and the above inflation annual fuel escalator scrapped until 2015.The income tax personal threshold, already up by £1,000 from the last Budget, is to climb by another £630 by 2012.
To promote just the sort of enterprises the country needs to trade its way out of trouble, the Chancellor upped the R&D tax credit and gave more incentives to entrepreneurs by doubling the lifetime limit on the capital gains tax reduced 10 per cent rate to £10 million. To simplify the tax regime, 43 reliefs will be abolished.
The number of enterprise zones to be set up around the country, and which will be offering businesses certain tax breaks, is to increase from ten to 21. A swathe of new business regulations is to go (worth an estimated £350 million in saved compliance costs), and very small firms will benefit from a three-year moratorium exempting them from new domestic regulations. Millions more are to be invested in training and technical skills, including an extra 50,000 apprenticeships.
This, Mr Osborne said, was a strategy for growth. “We want the words ‘made in Britain’, ‘created in Britain’, ‘designed in Britain’, ‘invented in Britain’ to drive our nation forward,” he concluded. How strong that growth will be, only time will tell.
