Budget 2013: Wasteful and ineffectual?
Authors: Ian Brinkley
21 March 2013
As expected, this was a “cross fingers and hope” Budget. The Office for Budget Responsibility notes that the pluses and minuses announced by the Chancellor over their forecast period more or less balance out and nothing in the Budget has therefore led them to revise their forecast.
The OBR forecasts announced by the chancellor show growth at 0.6% in 2013 and 1.8% in 2014. Much beyond that and we are back in the old game of shuffling the growth recovery that has been forecast since 2010 back a few more years. It is worth remembering that in March 2011 the OBR was forecasting growth of 2.5% in 2013 and 2.9% in 2014, just two years ago. We can only hope that this time the OBR will be proved right.
The chancellor rather misleadingly appears to have added several years together in his Budget speech when referring to job growth. The reference to 600,000 new jobs appears to refer to growth between 2011 and the OBR forecast for 2013. The actual forecast is for growth of 300,000 in 2013, followed by another 100,000 in 2014. The jobs forecast for 2013 still looks on the optimistic side.
The announcement on new infrastructure investment is welcome, even if the big numbers are spread over several years. However, the main impact will be felt from 2015-16 onwards when, if the OBR is right, the economy will be growing much more strongly. It would have been better to have brought more of the announced investment forward and to have used more of the underspend in government departments on “shovel ready” investment projects.
The chancellor made much of the deterioration in the international economic situation to account for the disappointing growth forecasts and tax prospects, claiming some other major OECD economies were as bad as in the UK. Both propositions have some truth in them. But with no prospect of domestic economic stimulation, the growth forecasts are now critically dependent on events in the rest of the world. The big question of where the growth is to come from in the absence of a strong economic recovery in our key overseas markets has still not been answered.
Many of the announcements on longer term measures around the innovation and industrial strategies had already been made in the Autumn Statement. But the chancellor missed an important opportunity in his speech to place these initiatives at the heart of his growth strategy. Instead, we got another cut in corporation tax – a wasteful and ineffectual measure solving yesterday’s problems.
Tomorrow’s global growth companies are far more likely to be attracted to the UK by the quality of our science and technology base, the strength of the innovation system, and the skills of the workforce. An announcement of further investment in these areas would have done far more to secure the UK’s position as a global innovation hub rather than enhance our reputation as a low corporate tax haven. And it would have started to provide a credible answer to where the sources of our future growth can come from.
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