The 2013/04/17 at 08:32
Stéphanie Salti, in London
“We are at an unprecedented moment in economic history, and the government should be doing everything in its power to get the economy moving,” declared John Longworth, Director General of the BCC following the presentation of the budget by the Finance Minister on 20 March. “Many of the Chancellor’s measures (…) will not take effect until 2013, which is too late. We need urgency, scale and delivery today.” On the occasion of a fiscally-neutral budget where expenses are being balanced out by revenue, the Chancellor has nevertheless given a small nudge to the world of business. Starting with another cut in the corporate tax, which is to go down from 21 % in 2014 to 20 % in 2015. In other words a far more competitive rate than in France where it stands at 33 %. This favour has not been accorded to banks, whose tax will be lifted to 0.142 % in 2014.
Says John Longworth: “The Chancellor may, in future, need to consider even further tax cuts of this nature if there is no sign of resurgent growth over the coming months.” The BCC has also hailed the government’s decision to eliminate the first 2000 pounds in employer contributions towards national insurance, an initiative that should allow over one-third of British employers to not pay tax on employment, described by John Longworth as “an important boost of confidence”.
The government’s decision to make improvements to the Funding for Lending scheme, whose aim is to boost loans to businesses and individuals, was judged positive but inadequate. “Funding for Lending can ultimately do little beyond lowering the cost of finance for companies already considered by banks to be ‘safe bets’. Only greater competition in the banking sector and a properly capitalised Business Bank, which would drive up appetite for risk, can deal with the very real frustrations we see in the business community across the UK,” according to John Longworth.
The BCC, which sees this project as an axis to capital recovery for the British economy, is also concerned by the absence of further details on the functioning of the public investment bank. The organism also regrets that the initial level of investment in the project has not been raised.
Apart from these aids to the business world, the Chancellor of the Exchequer also announced a series of aids to individuals in the form of fiscal flexibility: starting from next year, tax payers will benefit from exemption from tax on income of up to 10,000 pounds per year, while households will also be tax-exempt for childcare under certain conditions. Housing also emerges as a big winner in the new budget: 3.5 billion pounds will be allocated to encourage housing purchases. This modest bundle of measures remains largely restricted by a highly preoccupying state of public finance.
The main aims of the Cameron government, the reduction of the deficit and of debt, will thus take much more time to achieve than forecast: in this way, the public debt/GDP ratio will only diminish from 2017-2018 onwards, when it is set to reach 84.8 %, in other words two years longer than envisaged. As for the deficit, it should fall this year to 7.4 %, then 6.8 % in 2013-2014, (6.1% estimated in December), 5.9% in 2014-2015 (5.2%) and 5% in 2015-2016 (4.2%). The new growth prospects established by the OBR (Office for Budget Responsibility) have weighed heavily on these figures: in 2013, Britain is expected to undergo growth of 0.6 %, compared with an anticipated +1.2% in December, and +1.8% in 2014.
For the coming years, the OBR, an independent body, has confirmed a GDP at +2.3% in 2015, 2.7% in 2016 and 2.8% in 2017 – forecasts considered overly optimistic by the BCC. According to John Longworth, “it is hard to envisage UK growth consistently above 2.5 %.”