Today saw the UK Chancellor reveal his second budget. However, the Emergency Budget last June, alongside the Spending Review last autumn set out the tough parameters of a multi-year fiscal consolidation. Furthermore, there was a lot of pre-announced pain already in the system from the previous Labour Administration (e.g. National Insurance Contribution rises) but will only begin to be felt next month.
There has been much talk about ‘austerity Britain’, however, up until now while our Republic of Ireland neighbours have been treating themselves to copious amounts of harsh fiscal medicine, under the guidance of the EU/ECB and IMF, we have largely remained in the fiscal austerity waiting room.
Better than anticipated
The 2010/11 financial year is drawing to a close with the public finances in better shape than anticipated last year. So George Osborne can tick the box for successfully completing year one of his fiscal plans. However, 2010/11 represented a mild fiscal contraction. Looking at year 2 (2011/12) the scale of fiscal contraction will be at least twice this figure. Therefore in many ways the fiscal pain is really just about to start. Remember only the US and Ireland currently have larger fiscal deficits than the UK – Greece, Portugal and Spain’s are smaller. Whilst the bulk of today’s budget was effectively tinkering around the edges there were some welcomed developments. Most notable was the unexpected (additional) 1% cut in the main corporation tax rate to 26% next month.
We in Northern Ireland will have to wait until tomorrow for a Government consultation paper on rebalancing the economy here. All eyes will be on whether this includes what some believe to be the ‘holy grail’ of economic development – a much lower corporation tax rate. Outside of corporation tax, the cutting of fuel duty for motorists and the raising of the personal allowance tax threshold are the other headline measures. We also saw further tangible evidence of “Big Society” measures, namely, a 10% inheritance tax rate reduction for those individuals leaving 10% or more of their estates to charity. Whilst charity has begun at Westminster, this is certainly not a giveaway budget.
DOWNLOAD UK BUDGET COMMENTARY HERE .PDF