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Budget 2012
Much ado about nothing?
Will Straw
IPPR
2011 – a bad year
Forecast
made in
Jan 2011
Outturn
Change
Real GDP growth (%)
2.0
0.8

Inflation (Q4, %)
3.0
4.7
Claimant unemployment (Q4, mn)
1.55
1.60


Current account (£bn)
-28
-35

PSNB (2011/12, £bn)
120
126

Source: Office for National Statistics, HM Treasury, Survey of Independent Forecasters
2012 – outlook stabilising
Forecasts for 2012
GDP growth
(%)
PSNB
2012/13
(% GDP)
March 2012
0.8
7.6
November 2011
0.7
7.6
March 2011
2.5
6.2
November 2010
2.6
5.6
June 2010 – budget
2.8
5.5
June 2010 – pre-budget
2.8
6.6
Source: Office for Budget Responsibility
The longest ever recession
Real GDP, decline from quarter prior to recession (%)
UK Recessions
4
2
0
-2
-4
-6
-8
-10
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20
Quarters from start of recession
Q2 1920
Q1 1930
Source: Office for National Statistics and NIESR
Q2 1973
Q2 1979
Q2 1990
Q1 2008
Only Italy and Japan doing worse
Sick man of the G7?
Achieving the fiscal rule - I
Source: Office for Budget Responsibility, Economic and fiscal outlook, March 2012
Achieving the fiscal rule - II
Source: Office for Budget Responsibility, Economic and fiscal outlook, March 2012
Risks
Borrow more → adverse bond market reaction
•Cut taxes or increase spending – lose faith of bond market
investors – interest rates go up – mortgage payments
higher – no boost to growth (worse case = Greece)
Risks
Borrow more → adverse bond market reaction
•Cut taxes or increase spending – lose faith of bond market
investors – interest rates go up – mortgage payments
higher – no boost to growth (worst case = Greece)
Stick to Plan A → permanent loss of capacity
•No change in policy – growth remains weak – firms don’t
invest – capacity declines – unemployed become detached
from labour market – unemployment stays high for much
longer (worst case = Japan)
Main tax measures
•
•
•
•
•
Personal tax allowance increased to £9,205
50p tax rate cut to 45p from April 2013
Cap on tax reliefs for high earners
Higher stamp duty for properties valued at over £2m
Corporation tax cut to 24% from April 2012
• Gradual phasing out of age-related allowance
Main growth measures
•
•
•
•
National Loan Guarantee Scheme (aka credit easing)
Easier planning rules
Cuts in labour market regulations
Hints of an industrial policy to identify and support our
successful industries – UK to be Europe’s technology
centre helped by targeted tax incentives
Missed opportunity
Budget measure
Cost
(£bn)
Multiplier
GDP
boost
Osborne's Budget (201314)
Raise personal allowance
£3.30
0.3
£0.99
Cut corporation tax
£0.73
0.3
£0.22
Child benefit
£0.69
0.3
£0.21
Cut 50p tax
£0.05
0.3
£0.02
Stamp Duty
-£0.18
0.3
-£0.05
Bank Levy
Other net revenue
measures
TOTAL
Budget measure
Cost
(£bn)
Multiplier
GDP
boost
Jobs Guarantee for young
£0.40
0.6
£0.24
1p cut in NICs
£2.75
0.3
£0.83
Infrastructure spending
£2.90
1
£2.90
Stamp Duty
-£0.18
0.3
-£0.05
Mansion Tax
-£1.70
0.3
-£0.51
Other net revenue measures
-£2.46
0.3
-£0.74
TOTAL
£1.71
IPPR Alternative Budget
(2013-14)
-£0.42
-£2.46
£1.71
0.3
0.3
-£0.13
-£0.74
£0.51
£2.66
Implications for the North
• Very limited – this government does not do regional
policy
• £130m to help Network Rail expand Northern Hub
• Manchester Earn Back Model from £1.2bn infrastructure
investment as part of ‘City Deal’
• Manchester, Bradford, Leeds & Newcastle become
‘super-connected cities’