George Osborne faces huge task presenting next UK budget
LONDON // George Osborne, the British chancellor of the exchequer, or finance minister, will risk a public backlash when he presents his eighth UK budget on Wednesday amid an upcoming UK vote on EU membership and the need to raise more cash.
A recent political defeat over Sunday trading laws in England and Wales shows how tenuous the UK government’s majority is.
Downing Street has already primed the public’s ire with its climbdown on plans to scrap tax relief for high-earning pension savers, amid much anger from middle-class voters.
David Brookes, tax partner at accountancy firm BDO, told The National he expects a revenue-raising budget this time round.
“The problem is that the chancellor needs to raise more revenue and cut costs and it is not a great time to do that, what with the Brexit debate and the economy slowing.
“This will be more of a tinkering budget, than one of major changes,” Mr Brookes said.
Inevitably, politics will creep into Mr Osborne’s presentation, BDO suggests. “We know that the chancellor is against ‘Brexit’ and we think that he may say that if the UK votes for Brexit that there will be an emergency budget in July,” Mr Brookes said.
David Buik, market commentator at Panmure Gordon, told The National that this could be a very unpopular budget, and that Mr Osborne’s mistake was to not implement deep austerity in 2010.
“He has this huge shortfall and the more time goes by and we don’t cut the deficit and he has to introduce more austerity, it won’t go down well,” Mr Buik said.
“What he has to do is give something to small and medium-sized businesses because he knows that is where the growth will come from, not from the FTSE [index of top 100 listed companies].”
Mr Osborne’s room for manoeuvre has been limited because the economy is £18 billion (Dh94.72bn) smaller than the independent Office for Budget Responsibility expected, following growth of 2.8 per cent rather than the 3.8 per cent forecast for 2015.
“Even though he may have dropped his pension plan changes the chancellor still faces the prospect of missing his borrowing target for this year unless we get a significant surge in tax revenues in the remaining months of the current tax year,” Michael Hewson, an analyst at CMC Markets, told The National.
“This means that the chancellor is going to find it difficult to indulge in a giveaway budget even allowing for the financial jiggery-pokery that allowed him to drop his tax credit reforms in November,” Mr Hewson said.
One potential flash point on budget day is fuel duty.
For the past five years, this has been frozen and restoring the link with inflation could raise £3bn.
Mr Osborne has apparently already pencilled in such a change.
But member s of his own Conservative Party, tabloid newspapers and motoring groups are calling for him to drop the duty increase as it would hit working people hardest.
Any increase would be seen as taking advantage of the global slump in oil prices and opponents argue it would hit the economy just as it is starting to recover.
So analysts in the City and accountants expect to see a cautious budget that includes some cuts to public spending, as well as some changes to personal allowances and personal taxation. Inevitably, there are likely to be increases in taxes on cigarettes, gambling and alcohol.
The property industry, which will see previously announced hikes to stamp duty coming in next month, is desperate for a quiet budget for both residential and commercial property as announced changes are already distorting the market and changing behaviour as people rush to purchase buy-to-lets ahead of the end of the tax year on April 1.
Business rates continue to be loathed by companies, and an update on a continuing review of the levy is expected. Exempting the cost of new machinery from the levy would be helpful to manufacturers but it is retailers, including the UK’s biggest Tesco, that have been most vociferous on business rates recently.
Mr Osborne might be expected to give some indication that he understands their argument that jobs are at stake.
The Confederation of British Industry is calling for the reform of business rates. It also wants to see a clear direction on energy policy and more measures to support businesses to invest and conduct research and development.
The financial services sector is also in the chancellor’s sights. Last year Mr Osborne raised £8bn by increasing insurance premium tax and he could try the same again, analysts say.
Measures to make multinationals pay more corporation tax in the UK could also be brought in more quickly, which would be widely welcomed.
The chancellor is also expected to give more tax revenue powers to British regions, with “devolution” deals tipped for Bristol in the south-west, and Leeds in Yorkshire – which could dampen public anger outside London and the prosperous south-east.
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Published: March 14, 2016 04:00 AM