The Chancellor of the Exchequer, George Osborne may never deliver a more significant Budget speech than his first, last week, after just seven weeks in office.
The Government is faced with twin economic missions:
(1) Curbing public borrowing, and
(2) Encouraging growth in the private sector.
Describing his maiden Budget as “tough but fair”, Mr Osborne set out a strategy of fixing public finances through a balance of 77 per cent in spending cuts and of 23 per cent in tax rises.
In addition to public sector spending cuts (one of which is a 2-year freeze on public sector pay), there were, inevitably, hikes in personal taxation. The 2.5 per cent rise in VAT planned for January next year was the headliner. It was widely predicted and is estimated to generate £13 billion annually for the Government. The worry is that it may also dampen consumer spending and delay any recovery.
The increase in capital gains tax made its much-heralded bow, too, up to 28 per cent. Low and middle income tax payers were rewarded with a status quo rate of 18 per cent. The personal income tax threshold has begun its slow creep up to the £10,000 mark, edging up by £1,000 for next year.
“What about businesses?” I hear you ask.
Well, they fared relatively well and received the tax incentives they were seeking.
Corporation tax falls for both large companies (4 per cent over 4 years) and small companies (a 1 per cent drop next year). While the threshold at which employers start paying national insurance contributions is to rise by £21 a week.
Among a raft of initiatives George Osborne also extended the enterprise guarantee scheme, providing a boost for 2,000 small businesses, many of whom “struggle” to get credit. Under the scheme, the Government offers to guarantee 75 per cent of loans to small companies.
A temporary increase in the level of rate relief for small businesses for a year from October was also announced, with small tourism businesses receiving further tax concessions.
Mr Osborne said the cut in corporation tax would mean Britain would have “the lowest rate of any major Western economy, one of the lowest rates in the G20, and the lowest rate this country has ever known.”
It is the Chancellor’s hope that the path his Budget treads over the coming months and years, between trimming the public sector and encouraging the private sector to take up the reins of growth, will lead to a sustained economic recovery, and not a double-dip recession.
The Federation of Small Businesses (FSB) welcomed many aspects of the emergency Budget, but criticised the rise in VAT.
“The measures announced in the Emergency Budget will go a long way to reducing the deficit,” said John Walker, national chairman of the FSB.
“The increase in VAT to 20 per cent will, however, hurt small firms who will have to pass the increase on to their customers, unlike big business which can absorb the cost.”
The FSB also said it was concerned at Mr Osborne’s failure to reverse the rises in employer National Insurance contributions brought in by Labour last year.
Stephen Robertson, the director general of the British Retail Consortium, said: “Lowering corporation tax will support private sector investment and entrepreneurship. It also sends a positive message to the rest of the world that the UK has a competitive tax system which makes it a good place in which to do business.”
Let’s give our new Coalition Government a chance with this and hope whatever measures are taken help put the country as a whole back on its feet and in a better place than where we are today… After all, what other options do we have?