As he was coming to the end of his first budget speech of the new Conservative administration, George Osborne had given almost no indication that he still had one rabbit left to pull out of his hat.
And when he announced that he would be introducing a National Living Wage, starting at £7.20 and rising to £9 an hour by 2020, the startled looks on the faces of the opposition benches resembled those old photographs of the audiences at Harry Houdini’s shows when he had, yet again, managed another spectacular escape from death.
Of course, the devil is in the detail and whilst some small business groups, especially in the retail sector, were critical of the decision, it is nevertheless a political masterstroke that goes some way to reinforcing the Conservatives’ claim to be the party of the working people.
More radically, it is shifting the burden of away from the state, which has subsidised this for too long and therefore institutionalised a culture of low wages, to those businesses that should be looking to upskill, become more productive and, as a result, pay their employees more. And it should have a positive impact in the poorer regions of the UK, such as Wales, which have a higher proportion of workers on the minimum wage.
But this budget was about more than this one policy change. In fact, my view is that one of the more radical decisions was the announcement that the corporation tax rate will be cut to 19 per cent in 2017 and 18 per cent in 2020, giving the UK the lowest rate of corporation tax amongst G20 economies.
Whether this will be enough to offset any financial loss as a result of the new National Living Wage will no doubt be examined in detail over the next few weeks. However, it sends out a clear message to entrepreneurs and businesses around the World that the UK is open for business and, given Wales’ record in attracting inward investment recently, should be of massive benefit to this economy.
Apart from the headlines, there are other nuggets contained in the 123-page document that may benefit businesses in Wales and the Welsh economy.
Whilst there is an increasing commitment to supporting innovation by the Chancellor, there is finally a realisation, as this column pointed out a couple of weeks ago, that more needs to be done to build on the strengths of different regions, especially through the development of new Catapult Centres to bring together businesses, scientists and engineers to drive the commercialisation of technology.
Given that Wales has yet to receive any funding for one of these centres, this budget seems to suggest that this situation will change in the future and that we may finally get something that builds on an area of global excellence in technology.
Another boost to many small firms was the announcement that the Annual Investment Allowance will be increased from £25,000 to £200,000 for all qualifying investment in plant and machinery. This is to be welcomed, especially in the North East of Wales where over 40 per cent of the local economy is dependent on manufacturing, as it will give firms in the sector the opportunity to plan properly for capital expenditure over the next five years.
Many businesses will also welcome the decision to give further powers to the Office for Tax Simplification Budget to slash red tape which is a burden for many firms, with some estimates from the Federation of Small Businesses suggesting that the smallest spend at least two days per week on administrative issues rather than directly on their business.
In terms of transport policy, the decision to ask Network Rail to devolve more power to route managers closer to the front line should benefit Wales as should a discussion paper on the future of regional airports, which includes a consideration of the devolution of Air Passenger Duty to the Welsh Assembly.
The continued emphasis on devolution to cities continues and many in Cardiff would have been pleased to see that there was an explicit reference to the development of a City Deal for our capital city in the budget report. However, as this is clearly the direction of travel for this government over the next five years, both Newport and Swansea should begin preparing their own bids as soon as possible.
Indeed, Wales’ second city was not forgotten with an announcement that it will be one of six Next Generation Digital Economy Centres created to exploit opportunities across sectors of the digital economy including the creative industries, finance, healthcare and education. The drive of organisations such as Swansea Techhub has been critical in ensuring that this is the sort of project that comes to Wales.
Another major announcement that could have implications for the Welsh economy was the decision to meet NATO’s target of spending 2 per cent of national income on defence every year up to 2020.
Not only are there major defence companies such as General Dynamics based here in Wales but as we move away from conventional approaches to defence and towards cybersecurity, there are massive prospects for companies in South Wales which is now recognised as a part of the country where growth could occur over the next few years.
Therefore, this budget may not have been to everyone’s taste and the guarded response from the CBI to the introduction of the National Living Wages suggests that George Osborne will not shy away from making decisions that business may object to but are in the wider interest of the nation.
In the first Conservative budget speech since 1996, the Chancellor has taken the political risk that the business community, which the previous government had supported consistently in driving forward the recovery from the worst recession in living memory, will now take up the burden for a higher wage economy. Certainly, if we are to have a more productive and competitive economy, then I hope it is a challenge they will embrace positively over the next five years.