Forecasting the Budget is a dangerous game, but one that economists are frequently obliged to do; but if you really want to second-guess what George Osborne will do on March 19th 2014, you should look to his recent speeches on subjects contained within the Budget.
The most significant pre-Budget speech is the Autumn Statement, which traditionally gives a kind of halfway-point update on economic performance, and can act as a signpost of whether the next Budget will be optimistic or not.
In the 2013 Autumn Statement, George Osborne reported that “Britain’s economic plan is working”; forecasts of growth for 2013 had been upgraded from 0.6% to 1.4%, for 2014 from 1.8% to 2.4%, and for the following years had been set at 2.2%, 2.6%, 2.7% and 2.7% by the Office for Budget Responsibility.
This is important not only because of the prediction of short-term growth within each year, but also because of the longer-term positive trend in the figures.
As has been seen again in recent figures, employment levels are increasing faster than expected, and this too was seen in the Autumn Statement.
But the Chancellor was wary about export risks, noting that the UK economy was, at the time, outpacing many of its overseas counterparts, meaning international trade might not grow as strongly.
‘Britain is not doing enough’
Fast-forward to February 2014 and, in a speech in Hong Kong ahead of a meeting of G20 finance ministers, Mr Osborne was sounding more subdued.
“Britain is not investing enough; Britain is not exporting enough,” he said, adding that the current recovery is unbalanced, needs reform, and must not be allowed to rely too much on the performance of the finance sector.
Significantly, he also spoke specifically about the upcoming Budget, saying: “I want to deliver a Budget that supports a Britain that invests and that exports. A Budget that lays the foundations for our long-term economic security.
“And a Budget which ensures that, around the world, wherever you are, you can’t help but see ‘Made in Britain’.”
What does this mean?
Solid predictions are impossible to make, and guesswork about the upcoming Budget definitely should not be taken as financial advice, but we expect to see:
Specific assistance for small businesses and innovative start-up companies; business rate relief in one form or another, either for the newest businesses, those on the high street, or possibly those affected by flooding.
Funding for renovating business premises, and a renewed pledge (although it is likely to be fairly toothless) to boost bank lending and alternative lending to SMEs.
Industry-specific assistance for high-tech businesses (from videogames to nanomaterials) and for eco-friendly innovators – think high-tech and low-carbon.
We do not expect any major policy changes regarding microbusinesses and the self-employed, although these are growing in number substantially in recent months.
We are expecting some kind of announcement on inappropriate fiscal activity by big businesses, including those acting in collusion with one another.
This is likely to touch on tax evasion, and those who avoid paying tax in the UK by having a group structure with an overseas parent company; it may also mention the problem of high prices in the utilities sector.
However, the Chancellor is likely to offset all of this with some kind of comment about the importance of appearing tax-friendly to big firms in order to keep Britain ‘open for business’ and avoid sending them overseas.
For the working individual, it should be a good Budget in general, despite several years of austerity measures.
Will the Chancellor once again pull out a trump card, such as the decision to knock ‘a penny off the pint’? It seems likely that he might, but it’s hard to predict where he might play that trump card.
Income tax ‘personal allowances’ are on the increase anyway, as part of the long-term trend towards giving all working individuals their first £10,000 tax-free; and fuel duty has been frozen for an extended period already.
The Chancellor’s best possible move would be to actually reduce fuel duty, but this would probably come as a major surprise to those in the know; therefore, perhaps the most likely ‘rabbit from a hat’ is another very targeted reduction in alcohol duty for a single category of beverage.
With health high on the agenda, it could be that the Chancellor decides to drop duty on only the weakest drinks – beers and wines below 4% abv, perhaps – but only the Budget speech itself will reveal what he decides to do.