By Jason Tucker, Digital Marketing Executive at The Organic Agency
With the General Election looming in less than 18 months’ time, George Osborne’s Budget on March 19th is bound to be influenced much more by political considerations than by objective economics. However, the Chancellor has shown himself to be a very shrewd operator and he will no doubt be determined to marry up fiscal rectitude with some pre-election goodies to fire up Conservative support.
Cynics might argue that he cleverly held back the economic recovery to ensure a golden flight path leading right up to polling day without any nasty interest rate hikes to spoil the party. Now that the upturn has well and truly moved into overdrive, the overall backcloth couldn’t be better given the timescales involved.
The current annual growth rate of over 3% is quite astonishing given what other mature economies are achieving and the resulting boost to government revenues should make a further dent in the annual budget deficit while still leaving room for a few giveaways. Strictly speaking, there shouldn’t be too much of a net stimulus to the economy from the Budget. It seems to be firing on all cylinders already and too much in the way of tax cuts could threaten an early upturn in inflation and interest rates. As it is, there will be plenty of spending power coming into the economy already what with the continuing multi -billion pound PPI pay outs plus “ whatever it takes “ to compensate flood victims and conduct emergency repair work.
Given how hot the UK economy already is, the only safe way for the Chancellor to announce some decent tax cuts is if he accompanies these with some further cuts in government spending. This would tie in nicely with the Conservatives’ ideological mission to rebalance the country’s resources away from the public sector and towards the more economically productive private arena.
So what might we expect in the way of detailed announcements? Low wage earners have already done very well in terms of Income Tax reductions via successive increases in the Personal Allowance so the Chancellor will almost certainly turn his attention towards middle income earners in Middle England, traditionally the Tories’ core supporters. The best way to do this would probably be to raise the threshold at which the 40% Higher Rate kicks in (currently £ 31,886). A decent increase in this would also provide a small bonus to those earning over £150,000 who pay the 45% Additional Rate. Alternatively, there is the outside chance of an across the board cut in the basic rate to 19 % which would benefit taxpayers at every level.
In the area of business taxes, the two areas desperate for reform are Business Rates and Corporation Tax. There is now an accepted view that business rates penalise High Street retailers in the struggle to compete with their online counterparts while Corporation Tax constitutes little more than a minor irritation to those multinationals who can most afford to pay it but don’t. It remains to be seen whether George Osborne can make much progress on either or both of these two fronts before the election next year but even talk of future action would go down well with the electorate at large.
On Wednesday March 19th a number of Budget 2014 events are being hosted across the UK, to help businesses:
• review the measures announced
• help you interpret what these mean for you
• and have the ability to ask questions from experts
For more information and to book your budget 2014 place, visit www.bakertilly.co.uk/budget2014