The Budget - a further reflection

During my first job as a research fellow at Durham University Business School in the early 1990s, we had a contract with one of the banks to develop a commentary on the Budget and its effect on the small business sector.

In pre-internet days, this was done by a team of 20 of us sitting through the afternoon going through hundreds of pages faxed to us from the Treasury. We would put our analysis together on the different sections up until 8pm and the report would be edited, sent to the printers and flown to London to be released formally at 9am to a business audience.

Most importantly, we would have had the opportunity to cover everything of interest in the report and there would be no sudden nasty shocks revealed in the small print later.

Today, with pre-Budget reports and leaked press releases, it is often wise not to comment in detail on anything in the Budget during the first couple of days apart from the main headlines.

Like many, my instant reaction to these headlines on Wednesday was one of shock at the £175 billion of public sector borrowing estimated for this year and incredulity that the Treasury were of the opinion that while the economy would decline by 3.5% in 2009 it would bounce back by nearly 5% over the two years 2010-11.

Two days later, it would seem the Chancellor was extremely optimistic with both forecasts.

In terms of the Government debt, the Institute of Fiscal Studies (IFS) suggested it could be 2032 before the UK’s debt falls back to the 40% level which Gordon Brown established as the “golden rule” for acceptable government borrowing.

This is despite families potentially paying a minimum £1,400 a year as part of plans to ensure that public debt is back under control.

That level of borrowing could be reduced if we believed the Chancellor’s rosy outlook for 2010 and 2011.

Unfortunately, the three-month decline in prosperity of 1.9 per cent was worse than most economists predicted and was the sharpest fall in quarterly gross domestic product (GDP) since 1979.

As a result, some are pointing to the International Monetary Fund’s prediction as the more accurate one – that the UK economy will slump by 4.1% in 2009 and a further 0.4% in 2010.

It is not only the GDP data that is worrying.

Hours before the Budget, statisticians announced unemployment had reached 2.1 million, or 6.7% of the working population, with some predicting a further 1.2 million jobs lost by the end of 2010, mainly private sector.

However, it is not only the private sector that will suffer.

With the Treasury stating current expenditure in public services will grow by only 0.7% in the three years from 2011 – half the level experienced under Conservatives in the 1980s – it has finally become clear the golden days of government spending are now over for a generation.
And it will be regions such as Wales – overly dependent on the public sector – that will suffer the most over the coming decade.

Unfortunately for many in this country, this was a budget that was always going to be in denial of the real problems within the economy.

It did little to ensure that the banks will release more money to the small firm sector, or to support key sectors such as manufacturing and retailing.

Worst of all, it did little to cut taxes on businesses through either a reduction in corporation tax or a freezing of business rate.

Encouraging real investment and taking less money from millions of businesses struggling in the UK could have made a real difference to kick starting the economy and showed the Government believed in a partnership with the business community to drag this country back into economic growth.

Certainly, cutting taxes to businesses would have resulted in far more jobs than giving £1.5 billion to the Department of Work and Pensions.

Yet again, the Government has conveniently forgotten it is businesses that create wealth while civil servants spend it.

By focusing on populist policies more to do with electioneering than saving the economy, this budget will do nothing to alleviate the financial pain felt by millions of people and go down in history as a lost opportunity for a Government that has lost its way.

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