THE CHANCELLOR’S BUDGET has usually been more of a chore and a bore for me than a significant event in the political calendar, but George Osborne’s fourth Budget was the last that will affect us before the next election and, given the continued weak economy and sluggish growth, it is no surprise that it is intended to lift some of the current gloom.
As an FD, I am bombarded by the annual influx of free analyses, summaries and invitations to Budget seminars, and it would be negligent of me to ignore the plethora of press comment. Given the pre-Budget information released by the Office of Budget Responsibility (OBR), and other interesting leaks, the important content is well known in advance.
Nevertheless, I view the budget in three broad areas. The first is the usual trivia about smoking, drinking, fuel, which I completely ignore. Second, there are points that call for the FD to take some action. These include changes to NI and tax rules that require processing and, occasionally, decisions that could be affected by taxation issues. Third, there are the interesting points about forecasts, debt levels, economics, which provide a menu of business opportunities and risks. This is my focus and where the management team expect me to comment and to advise.
Undoubtedly fuelled by the Public Accounts Committee debate on tax fairness, this year’s Budget made taxation more prominent – especially in the form of a reduction to corporation tax. The competitiveness of the UK tax regime is improving under this government [see page 26] and many businesses will welcome the changes. But the future regime remains uncertain, and uncertainty is an enemy of any FD.
Due to the pre-Budget leaks, I was not surprised by the news that the “recovery is taking longer than anyone hoped” and the delay of the date for the national debt to peak to 2017/18. Another non-surprise was the OBR forecast for growth, which has been halved to 0.6% – a number that strikes me as spurious accuracy or political manipulation of data.
This year an increased investment in infrastructure, housing and construction was proposed, which must be good for the economy and for business. However, this investment is to be funded from restraints on spending. Switching between the current and capital commitments pretends that the fiscal targets will be met. This accounting practice was abused and discredited in a number of UK plcs in the last century, so I am confused that the government is introducing it again.
Nevertheless, businesses in many supply chains will benefit from this investment proposal, given the various warnings about a triple-dip recession and accusations about a lost decade as the UK is only marginally better off than Japan, with its 23 years of almost zero growth. What I had hoped for in this Budget was some idea of how to address the fact that UK growth is constrained by the banking sector, the eurozone crises and the ongoing austerity measures.
I have often asked why the Budget is necessary, and whether the policy issues it contains could be announced throughout the year. I have concluded it is entirely down to political positioning as there are better ways of doing this. Many FDs have been in the position where we would have gladly cancelled a budget presentation, and I suspect George Osborne would have cancelled this one if he could.
As FDs we should be more be concerned about the uncertainty about the Bank of England’s role, the new monetary policy remit and the intentions of the incoming governor. Before the Budget speech, one official was reported to have quipped, “The day that Mark Carney sits down will be more important than when George Osborne stands up.” ?
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