Weak outlook in UK Budget
Austerity is continuing to bite with weaker tax receipts and growth but George Osborne’s measures also prevented some rises in local household bills. Peter Cheney summarises the Budget.
George Osborne’s fourth Budget was unveiled at Westminster as growth forecasts and the UK’s credit rating fell and local unemployment rose.
The Government has decided to maintain capital spending (in real terms) and keep fuel duty at current levels. Electricity generators in the province will also be exempt from the carbon price floor, which was introduced in April. Without this exemption, generators would have faced a £175 million tax bill over the next five years, resulting in higher prices for businesses and households.
As a result, Northern Ireland may benefit from more infrastructure investment and the financial pressure on local consumers over the next year will be lower than would otherwise have been the case.
In its outlook, the Office for Budget Responsibility expected weaker tax receipts over the rest of this Parliament with public sector borrowing staying around £120 billion. Expected GDP growth for 2013 was downgraded from 1.2 to 0.6 per cent while the 2014 figure fell from 2 per cent to 1.8 per cent.
The number of people in work across the UK went up by 131,000 in the last quarter of 2012, mainly due to a rise in new part-time jobs. The size of Northern Ireland’s workforce, though, decreased by 13,000.
Seventy-three thousand people in the province were out of work. The regional unemployment rate reached 8.5 per cent (the highest since January-March 1998), driven up by redundancies and further job losses in construction and manufacturing. Youth unemployment stood at 20.4 per cent.
Increasing the personal allowance will take 7,000 people out of the tax system but the Treasury has also quietly moved the starting point for higher rate income tax down to £31,865. Employees whose salaries reach that level will therefore face a tax hike from 20 to 40 per cent.
Commentary
“This Budget recognises the challenges facing Northern Ireland and the urgent need to renew and rebalance the economy away from an over-reliance on the public sector,” Secretary of State Theresa Villiers stated. The key points are outlined in the opposite table.
Speaking in the Commons, Sammy Wilson cautiously welcomed the extra capital spending, exemption from the carbon price floor and continued freeze in fuel duty.
He recognised that the Funding for Lending scheme (which covers the Ulster Bank, Barclays and Santander) had some “positive impacts” but noted that most local banks were outside the scheme.
In Wilson’s view, government policy was the only source of economic stimulus as consumers and the private sector lacked confidence. “If there is no growth, we cannot pay off the debt,” he stated. Wilson pointed to the decreasing price of bonds, which indicated that “there has never been a better time for him to borrow” for infrastructure.
Sinn Féin Economy Spokesperson Daithí McKay highlighted a 1 per cent reduction in departmental resources. However, that figure refers to UK Government departments and not the Executive, which instead faces a 0.2 per cent cut.
McKay welcomed extra capital spending but warned that this would not offset other cuts. He focused on public spending but acknowledged: “The economy in the North cannot reach its full potential while it continues to be financed as one giant Whitehall department.”
SDLP MP Margaret Ritchie was more positive, welcoming the fuel duty decision and cut for SMEs’ national insurance. Ritchie was critical of welfare cuts and the continued public sector pay freeze. “While welcoming some of these individual measures, they must be held up against what is a largely underwhelming budget and a bleak economic outlook,” she added.
UUP leader Mike Nesbitt called for more infrastructure investment and public-private partnerships. Nesbitt said that departmental budgets should be more closely aligned to spending “and the splurge of cash at the end of the year just to exhaust budgets must end.”
Speaking for Alliance, Naomi Long saw no surprises but was pleased with the freeze on fuel duty.
TUV leader Jim Allister declined to comment on the Budget but later welcomed the deferral of the decision to devolve corporation tax. “For years, Stormont has wasted its energies in chasing this moonbeam,” he commented. “In a gross miscalculation, they pursued no other economic approach and now it’s back to the drawing board.”
Green Party Economy Spokesman Ross Brown claimed that the Budget was “weighted in favour of big business.” Brown also criticised the cut in the highest income tax rate from 50 to 45 per cent and tax breaks for shale gas exploration. As an alternative, he re-emphasised the Green New Deal.
UKIP MLA David McNarry suggested that fewer departments at Stormont would mean “fewer pet schemes” for ministers and a greater economic focus. He questioned the absence of enterprise zones, which have been rolled out in Britain.
CBI Director Nigel Smyth welcomed a “pro-business” Budget which has “gone some way to building business and consumer confidence”. In particular, he welcomed the Chancellor’s announcements on the carbon price floor exemption, capital spending, fuel duty and national insurance.
In contrast, ICTU Assistant General Secretary Peter Bunting reiterated that the public sector pay freeze would continue to reduce demand. “We believe that a real plan is needed to invest in real jobs and real growth,” Bunting remarked. “The alternative is the slow spiral of decline and stagnation being inflicted upon the people of Northern Ireland by a far-away Chancellor with a far-out dogma: the ruinous cult of austerity.”
Key numbers
• 2013 GDP growth estimate: 0.6 per cent (down from 1.2 per cent)
• Reduce Executive budgets by 0.2 per cent
• Additional £94 million capital spending over next two financial years
• Increase personal allowance from £8,105 to £9,440
• Reduce higher rate band from £32,011 to £31,865
• Employment allowance to offset £2,000 of national insurance
• Reduce main corporation tax rate from 23 per cent to 21 per cent
