March was quite a month.
Political uprisings across North Africa and the Middle East, British troops deployed again (at no small cost), earthquakes and exploding nuclear power stations in Japan, soaring global oil prices and a twitchy energy sector; not to mention projected growth figures for the UK down from 2.6% to 1.7%, rising inflation, unemployment at its highest for 17 years and the fiscalshackles of a commitment to reduce the UK’s deficit over a parliament. This was the setting for UK Chancellor George Osborne’s second budget in the top job.
Osborne’s March budget was packaged as unashamedly pro-growth. “Let it be heard clearly around the world – from Shanghai to Seattle, and from Stuttgart to Sao Paolo: Britain is open for Business”, the Chancellor proclaimed from the dispatch box last month. And to Osborne’s credit, he did grab the attention of significant sections of the business community.
The Confederation of British Industry (the UK’s top business lobbying organisation) largely endorsed the budget, as did Sir Martin Sorrell, CEO of the world’s second largest advertising company in the world, WPP. Furthermore, in a letter to the Daily Telegraph 39 of the UK’s leading venture capitalists also expressed their approval. At an otherwise gloomy economic time, this will have been music to the Chancellor’s ears.
Of the key announcements that lifted business spirits, the most notable was the cut in corporation tax by 2% this year to 26% and by 1% in each of the following three years. Others included a simplified business tax code, a plan to streamline planning regulations, and 21 new ‘enterprise zones’, which will aim to stimulate selected areas of the country through tax breaks, reduced planning restrictions and superfast broadband.
It was not all positive for Britain’s economic outlook, however, and certain announcements offered genuine cause for concern over the future of Britain’s finances. The UK is set to borrow 9.9% of national income in 2010-11, and although this is expected to fall, the borrowing forecast has been raised by 0.6 percentage points of national income every year from 2012-13 onwards. As Osborne so candidly put it, “the size of the task of repairing Britain’s finances is unchanged”.
There was also concern among some respected bodies that other leading Coalition policies will in fact hamper growth. The National Institute of Economic and Social Research raised particular concern over the policy to cap skilled migration, which it expects will reduce output by between £2-4 billion by the end of the parliament. Restrictions on student visas it also expects will result in a reduction of £1-2 billion in UK exports.
Ultimately, any analysis of this budget must consider the Government’s wider policy agenda and the interplay between this and its economic programme – as well as turbulent international developments.
The UK’s Shadow Chancellor Ed Balls will be watching the impacts of this budget on growth and business like a hawk. If it fails to deliver growth, then Britain’s economic future will be as precarious as the Chancellor’s political reputation.