Economic Interests

If you owe the bank £100, that's your problem. If you owe the bank £100 million, that's the banks problem.

The UK Budget

The main points from the UK budget were:

  • The UK economy will avoid technical recession this year, with growth in the first quarter of 2012.
  • GDP growth is expected to be 0.8% this year and 2% next year.
  • Inflation is expected to fall to 2.8% this year and again to 1.9% in 2013.
  • Government borrowing this year is predicted to be £126 billion.
  • The Debt to GDP ratio is expected to keep rising until 2015.
  • Unemployment is expected to peak at 8.7% this year before gradually falling over the next few years.
  • Child benefits are set to be phased out gradually for any family with a member earning over £50,000, with those earning over 60,000 losing the benefits entirely.
  • Personal tax allowance (the amount where employees have to start paying income tax) will rise to £9,205 in 2013 from its level this year of £8,105.
  • The 50p tax rate will be dropped to 45p next year.
  • A new 7% stamp duty tax on properties valued at more than £2 million (up from 5%).
  • Corporation tax will be cut to 24% in April, and is expected to be cut to 22% in 2014.
  • Plans to double UK exports to £1 trillion this decade.
  • Relaxation of Sunday trading laws during the Olympics
  • Duty on tobacco products will rise by 5% above inflation, roughly 37p increase on a packet of cigarettes.
  • Taxes on alcohol will increase by 2% plus inflation, roughly a 10p rise in the price of a pint.
  • Government spending in Afghanistan will be £2.4 billion lower than planned over the remainder of parliament.
  • An extra £100 million is to be spent on accommodation for armed forces and their families.
  • The family welfare grant (used to help out families with members deployed in the army) is to be doubled.
  • There will be tax relief for video game/animation/high-end television producers.

Some of the explanations behind these points:

  • The 50p tax rate is basically a tax on the rich, taxing 50% of consumers earning over £150,000. But this has encouraged tax avoidance and only raised a third of the predicted £3 billion. It is also the highest rate in the G20 countries and has widely been seen a failing policy.  A drop to a 45p tax rate could make tax collection easier, and a new 7% stamp duty is expected to a better method of taxing the rich.
This shows the differences between the 45p and 50p tax rates. 
  • The government wants to make Britain the technological centre of Europe, so is trying to attract big gaming and television companies to produce in the UK.
Wallace and Gromit
“It is the determination of this government that we keep Wallace and Gromit exactly where they are.” George Osborne
  • It is going to take until 2016/17 for the UK to eliminate its “structural” budget deficit by numbers given in this budget. That means public borrowing will have to drop from 8% of GDP right now to little over 1% in 5 years time, a tough objective at a time when recovery has been weak. This also means the UK will keep increasing its debt until that year and will only start actually cutting the debt after that point. Threats of a loss of their AAA credit status also restricts the UK from spending beyond their means.
Borrowing chart
The UK borrowing decreasing sharply over the next five years, but is it possible?
  • Investment in Britain is weak compared to countries like America, and the government is trying to persuade corporations to spend money. The cash held by companies reached more than £700 billion last year, and the UK is a more cost effective place to invest since the recession, but still investment is low. The government has therefore lowered corporate tax this year and is set to decrease it further, enticing firms to invest in Britain. With the government struggling with a big deficit and consumers saving, corporate investment could help build a sustained recovery.
The first graph shows the cash pile up at firms over the last decade, and the second graph shows Britain investment sink below the USA’s.
  • Plans to increase exports in the decade are vague, but are the right idea. Britain still imports more than it exports, and plans to reduce imports are not enough, their needs to be more ideas for increasing exports and production in the country. The corporate tax and technology tax reliefs should help bring new production into the country, but more needs to be done. New plans to help smaller businesses, a review by Michael Heseltine on the economy and exploring the idea of enterprising loans for young people starting businesses could help boost exports.  This should also help improve unemployment, which is set to be high this year, but gradually fall (maybe due to the policy’s already in place). If the country can get producing more products, then we could see unemployment fall faster.
Unemployment chart
UK unemployment gradually decreasing, could there be more ways of getting it down?
  • The relaxation of Sunday laws during the Olympics is to help deal with the mass tourism set to come into London and the surrounding areas, though employees might not be too happy with having to work longer hours.
London Olympics Focus Of £100m Tourism Push
Mass crowds for the Olympics
  • Finally, the decrease in expected spending in Afghanistan looks a good idea as the money is set to be invested in the soldier’s families. But I hope it doesn’t mean more lax management of the situation in Afghanistan, as recent events have drawn bad publicity of the operation  and the UK (and USA) need to complete the job of training the Afghanistan government to be able to work by itself.


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