A lot can happen in four months. For the Chancellor halving the growth forecast. He told a packed House of Commons that growth in 2013 would be 0.6% – half the 1.2% he predicted four months ago in his autumn statement.
The Office for Budget Responsibility(OBR) predicts growth to go up very slowly. To be exact 1.8% in 2014; 2.3% in 2015; 2.7% in 2016 and 2.8% in 2017. Although they do predict that the country will avoid a triple dipped recession. Hmmm, we’ll see. They’ve had to reduce many of their forecasts in the past.
Despite the Chancellor’s sleight of hand on how he’s reducing debt the OBR contradict him by publishing figures that show borrowing going up. According to the OBR is also going up from £121 billion to £123.2 billion.
After the OBR’s correction of the PM a couple of weeks ago and now these figures on debt. How the Government must regret ever letting the body see the light of day.
The Chancellor also changed the marching orders for the Bank of England. He’s told Mervyn King and his merry men not only to keep inflation at 2%. At the same time he’s told them to focus on growth as well as inflation. So you can imagine that King will be getting ready to print more, sorry, electronically create more cash under the Quantitative Easing policy. How it works is explained below.*
On a day the public sector workers are on strike the Chancellor decides to rub salt in the wound. They cop it again.
The cap of 1% on their pay will now continue until 2015-16. And those expecting an increment had better forget it. As the Chancellor puts it he’ll put “limits on progression pay rises in the sector.
Those civil servants still in jobs will have less to spend for there are to be £11.5 billion in cuts earmarked for 2015-16. These are on top of those already announced in previous budgets. This is up from the £10 billion he had previously announced. This amounts to additional cuts of 1% for the next two years.
The cuts pay for £3 billion extra for new capital projects. Wales, courtesy of the Barnett formula will get a share.
On housing shared equity schemes will be extended, with interest-free loans up to 20% of value of new build properties.
Bank guarantees will also underpin £130 billion of new mortgage lending for three years from 2014.
Businesses will be pleased with Corporation tax being cut by 1% to 20% in 2015. They’ll also be happy with the new employment allowance. This will take the first £2,000 off the employer national insurance bill of every company in the country. Around 450,000 small businesses – one third of all employers – will pay no employer NI at all.
Just so that those paying personal tax don’t feel left out of it the Chancellor is to raise the personal allowance to £10,000 from next year, not from 2015 as he had previously planned.
Many of the other changes have been much trawled. Child Care Allowances, help for first time buyers etc. And perhaps most important the planned 3p rise in beer duty has been scrapped. He’s even cut the duty by 1p cut in duty on a pint of beer and scrapped the beer duty escalator. But if beer is not your tipple be aware the planned rises will go ahead.
And the consequence for Wales a much tighter revenue budget but with some more cash to spend on capital projects. The Welsh Government reckon the revenue cuts amount to £32 million from April onwards and then £81 million the next financial year.
All in all, the Chancellor has delivered a budget that is neutral and his direction of travel is unchanged.
It can be summed up as more cuts and little growth. It will not give the boost that the economy dearly needs.
*When the Bank of England and other central banks want to get lending to raise economic activity they usually cut interest rates. Low interest rates mean that people are more inclined to spend rather than save. That’s the theory.
But despite interest rates being at rock bottom, people are still stubbornly refusing to put their hands in their pockets and spending. The UK interest rates are so low there’s not much scope to lower them further.
Even at these low interest rates the economy is still in the doldrums. So to get things moving they’ve tried a different approach.
The wheeze they’ve come up with is called Quantitative Easing (QE). Mervyn King and his team just pump money into the system to get the economy moving.
The way they do it is by buying up assets, usually government bonds from money they’ve created. Printing money, well not quite nowadays they do it electronically, but the same thing.
So the banks and insurance companies and other financial institutions that sell these bonds become rich in cash and the theory is that they’ve got more cash to lend to businesses. Economists call the “new” magically produced money a boost to the money supply.
The opposition press conferences in the Assembly were dominated by advice to Chancellor Osborne on his budget tomorrow. Of course this was political posturing. The Chancellor is not the kind of man to take advice at the best of times. To be swayed by the last minute advice from Assembly politicians? Unlikely, me thinks.
On a more serious note the Finance spokesperson, Ieuan Wyn Jones called for the UK Government to sort out, our old friend the Barnett Formula. You’ve guessed it, Plaid Cymru want a fairer needs-based funding system for Wales. Well, who would disagree with fairness. Oh just the small matter of the UK government.
They ain’t going to change things anytime soon, not whilst the Scots are getting such a large subsidy out of Westminster. Call it the Unionist bribe, but its going to remain. Despite Plaid Cymru and for that matter Carwyn Jones, bleating about the unfairness of it all.
As well as Barnett reform, the former Plaid leader, also called for tomorrow’s Budget to include the transfer of minor taxes to Wales, for the Welsh Government to have borrowing powers to invest and for the Welsh Government to bring forward shovel-ready projects to help the Welsh economy.
Kirsty Williams, Leader of the Welsh Liberal Democrats, called for the Coalition Government to increase the personal tax allowance to £10,000 now, not by the end of the UK Parliament term
She said that “from April, over 100,000 workers in Wales will pay no income tax and 1.1 million workers in low and middle incomes in Wales will receive a £600 income tax cut. If the personal tax threshold were to go up to £10,000, ordinary workers would see £700 back in their pockets.”
Putting money in peoples pockets, as Williams wants, might give them confidence to start spending again to kick start the economy. God knows the economy needs it. The economy has been in the doldrums for sometime and more of the same will not breathe life into it. But whilst such a move would be welcomed, it makes little economic sense to be cutting back on benefits at the same time. The economy needs the spending of poor people.
Well, the budget will be delivered lunch time tomorrow. This blog will provide a summary as soon as the Chancellor’s finished. So for good or ill you’ll all be fully informed by the end of the day. And of course, I won’t be able to resist a comment or two. Or perhaps even more.
The Chancellors got it wrong and should change course, according to Carwyn Jones, Wales’s First Minister.
He devoted the major part of his monthly press conference in attacking George Osborne’s economic policy. Jones urged the Chancellor to listen. He said, “we believe its time the Chancellor started listening to the growing number of voices calling on him to look again at the path he’s chosen and to take decisive action to reignite the UKs economy.”
Not only did he tell the press but his message was delivered to the heart of the UK government . The First Minister had dispatched his own Exorcet in the form of Jane Hutt the Finance Minister up to tell the Chief Secretary of the Treasury Danny Alexander that Cameron’s government has got to change direction. Savaged by a dead sheep comes to mind.
Back to Carwyn Jones. With the bit between his teeth he told the press that “If we look at the facts, at best growth can be described as sluggish. There’s been no real growth for two years and we’ve simply being bumping along the bottom when the economies of other nations are growing.”
“We’ve lost our triple ‘A’ status. The very yardstick the Chancellor asked to be measure against. Its disappearance
is a huge blow in terms of the UK’s credibility. Even though ministers are now saying that the triple A status is largely symbolic. We know that austerity hasn’t led to growth. Its time for a change of direction.”
So there we have it Carwyn says they’ve failed on the economy. And to make matters worse what they’ve done to welfare. Well it doesn’t bare thinking about.
“Welfare cuts was not only hurting the individuals concerned but the Welsh economy. If you look at welfare reform as an example, we believe that the reforms will take at least £590 million out of Wales which will have a devastating effect not just on families but on the economy and there’s little evidence that these plans will raise employment they’ll simply reduce the spending power of many families taking money out of the Welsh economy.”
He continued by saying that “It won’t just hit families with children but also a blow to middle income earners as well. We estimate that there are 42000 people in Wales will lose their entitlement to Disabled Living Allowance. That’s an average loss of £83 per claimant per week and an annual loss of £103 million pounds in Wales as a whole. It will simply drive more people into poverty.”
So what’s Carwyn Jones’s recommendation to the Chancellor. Well the same as Vince Cable, more infrastructure projects.
He wants the UK to “bring forward a major programme of infrastructure projects and other activities that will stimulate the economy. We know that the right time to reduce debt is when the economy is recovering and has recovered. To do so now is paying a bigger than necessary price in terms of lost output. And we have capital projects that could be accelerated if additional resources were made available so as far as Wednesday’s concerned and the budget we believe that the time has come for the Chancellor to face the facts and plot a new course for our economy before its to late for Wales as it is for the rest of the UK.”
So there’s a chance that if Vince gets his way, our old friend the Barnett formula will see more cash coming the Welsh Governments way. So Carwyn might have part of his wish list.
Even if Vince and Carwyn get their infrastructure projects will it be enough. No not really. All the indications are that budget is going to be more of the same. Osborne’s unlikely to do what’s required to get the country moving again putting money in the pockets of consumers so that they start spending.
There is no good whining about the banks not lending to businesses. Which banker in his, and it usually is an he, right mind is going to lend to a business if the consumers at the end of the day hasn’t got the cash to by the business’s product.
As the old song goes. Money Money Money makes the world go round. If there ain’t any, the world stops turning.
To get the economy moving we’ve all got to feel richer. That’s the test for the Chancellor.
All the indications are that he’s going to fail the test.