Belfast Telegraph

Wednesday 16 April 2014

Budget's chance to ease pressure

Business Editor David Elliott looks at possible impact of George Osborne’s strategy.

Money worries: Chancellor George Osborne needs to raise more cash
Money worries: Chancellor George Osborne needs to raise more cash

Delivering a Budget after one of the longest periods of economic contraction in the UK’s history is never going to be easy.

There’s no doubt Chancellor George Osborne needs to raise more money to help repair the Treasury’s battered coffers but government spending cuts are already in place and ramping up taxes at a time when inflation has managed to shrink disposable income across the board won’t do any good.

So what is Mr Osborne likely to do tomorrow? We asked not only economists but also the people representing the industries most likely to be impacted by the Budget.

We're still in austerity's foothills

Alan Bridle, UK economist at Bank of Ireland

While Budgets are essentially fiscal statements, ironically this one could be more about monetary policy.

The Bank of England may soon be facing both regime change and remit change with the chancellor widely expected to signpost potential changes to the mandated inflation target, perhaps by way of a formal review.

In practice, the central bank has been tolerating an inflation overshoot for the last few years but the outcome could be a more explicit target for growth and employment.

Frustration with the results to date may also prompt Mr Osborne to announce an extension of the Funding for Lending Scheme with a target or incentive for the UK's banks to improve lending volumes to SMEs, as opposed to the mortgage market.

I also expect to see the announcement of an accelerated capital programme, largely focused on housebuilding and refurbishment in the South-East of England where supply constraints are greatest. Those who advocate the chancellor should borrow more to promote growth are likely to have it confirmed that he has been, though not by choice!

For households, I expect we'll see some modest and incremental tweaks to personal tax but we should not forget of course that pre-announced changes to personal allowances will give over 500,000 workers in Northern Ireland a boost to take-home pay from next month, equating to over £260 per annum, everything else held constant.

The more sobering news is that despite all the noise about cuts, reductions in Government current spending have not commenced in earnest.

We are still in the foothills of austerity that will extend into the next parliament and quite possibly, the one after.

Business still needs stimulus package

Angela McGowan, chief economist, Danske Bank

With roughly 60% of Northern Ireland's public expenditure dedicated to health and education, a significant proportion of Northern Ireland's block grant will be protected in next week's budget.

Despite calls for David Cameron to remove any ring-fencing of these departments, the prime minister has refused to budge on the issue.

But protection of the block grant is only one side of the local economic story.

Northern Ireland's private sector is in dire need of some economic stimulus measures to be delivered tomorrow.

The local business community will want to see some definitive moves to boost economic growth and domestic demand levels for retailers and local businesses.

In addition, households will want the chancellor to do something about alleviating pressures from inflation and high energy costs. A reduction in VAT would go a long way towards supporting both households and those contracting sectors such as retail and construction, but such a move is unlikely.

While there may be some tweaking around the edges in the Budget, for example, freezing of business rates and talk of bringing corporation tax down in the medium term; there is a fear that this Budget will not deliver the immediate fiscal boost that is so badly needed.

The coalition government continues to send out the message that it believes monetary policy alone is sufficient to deliver a recovery, but the current economic data in the UK tells us a very different story.

Driving down fuel costs is vital

Willie Oliver, chairman of the Road Haulage Association

As a road haulier employing 50 people, I sincerely hope to hear measures that promote wealth creation and jobs that last, especially in manufacturing and process industry.

I am on the board of the Road Haulage Association, along with a dozen other hauliers, and we all agreed that that was our number one message to government for its growth review.

We have really serious issues in Northern Ireland to do with diesel duty and illegal diesel.

UK duty is by far the highest in the whole of the EU, at 57.95 pence a litre.

In the south it is just 48 cents — and Dublin will give hauliers a rebate from July.

So we are looking for George Osborne to cut fuel duty.

Even more importantly, we need HMRC to be more effective in combating diesel laundering and fraud, which is undermining legitimate hauliers.

I would like to hear from Chancellor Osborne that he is determined to stamp out this area of crime and is giving HMRC the resources they need to do that.

I am also looking to Mr Osborne to do more to get large companies to pay their bills more promptly — that is the best way he can get cash to the SME sector.

Pubs call time on more duty hikes

Colin Neill, chief executive of Pubs of Ulster

With speculation rising ahead of this week's Budget announcement, one thing that is almost certain is that the pub industry will be hit with another increase in beer duty.

While the chancellor may not directly increase tax, the industry is still likely to be facing an increase in duty thanks to the beer duty escalator. The escalator, which was introduced four years ago under the then Labour government, means that duty on beer increases automatically by 2% more than inflation every year. Therefore, we are expecting a duty rise of 5% in this week's Budget.

Pubs of Ulster has lobbied extensively on the issue of beer duty, highlighting the impact of on-going taxation in terms of jobs and the overall health and survival of the industry. Earlier this month, we travelled to Westminster for a debate on duty and met with the shadow pubs minister and the chairman of the All-Party Parliamentary Save the Pubs Group, to discuss the urgent need to bring an end to further increases in duty.

Ahead of the announcement tomorrow, we call on the chancellor to abolish the beer duty escalator.

For the sake of the industry's future, we hope he listens.

Our chance to end world hunger

Rose Caldwell, Executive Director of Concern Worldwide (UK)

The world's food system is broken and one of the most pressing challenges of our time is to ensure it is functioning effectively so that everyone in the world has enough food to eat. 2013 is an important year in this fight against hunger and malnutrition.

In June Prime Minister David Cameron will chair the summit of G8 world leaders. Concern Worldwide and others have been campaigning hard for the needs of the world's poorest to be kept at the top of the G8 agenda.

This year the prime minister has also been playing a leading role in negotiating the next set of global development goals. But the next crucial step along the road to ensuring there is enough food for everyone must be taken by Mr Osborne in his Budget tomorrow.

In short, the 2013 Budget could mark the beginning of the end for world hunger — IF George keeps the Government's promise to spend 0.7% of national income on aid and IF he acts to ensure the Finance Bill forces UK companies to disclose tax dodging in poor countries.

The 0.7% aid promise is too important to break. Plus, if we sort out tax dodging by UK companies in developing countries, we'll spend less on aid in the long run.

The Chancellor must stick to this course

Nigel Smyth, Director of CBI Northern Ireland

The political clamour for the Government to change course has got much louder in the weeks since the UK lost its AAA credit rating.

However, the underlying facts haven’t changed.

The downgrading had been long anticipated by the markets and our view is that it hasn’t told us anything we didn’t already know about the economy.

The business view is clear — as things stand today, the chancellor must stick to his guns on deficit reduction tomorrow’s Budget.

Changing course in the Budget simply risks a backlash in the financial markets, forcing up borrowing costs and snuffing out fragile growth.

However, the CBI hopes the chancellor will take this opportunity to provide some further growth stimulus.

In our fiscally-neutral Budget submission to the chancellor we called for a further capital investment boost for housing, several taxation measures to support high growth businesses and the freezing of air passenger duty.

We also are calling for a shift of resources from the revenue spending into capital and encouraging further steps to ensure that infrastructure projects are delivered on time.

Every pound spent on construction will deliver £2.84 in economic benefit.

Given devolution, we need to recognise that only some aspects of this are directly relevant to Northern Ireland but the message, on moving additional resources to capital investment, remains the same.

We will also have an eye on any announcement in respect of fuel duty as well as the proposed Carbon Floor Price derogation for Northern Ireland.

However, for us the more important engagement with Government is the meeting our first and deputy first minister will have with the prime minister on March 26 on the subject of devolution of corporation tax powers to the Northern Ireland Assembly.

Given the continued economic challenges that we face, it is vital that the prime minister takes this opportunity to just say yes to devolution.

We must use the next week to constantly bring that firm message to his door.