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March 22, 2013 / politicsbitesize

The Budget 2013

BudgetBoxThe beginning of 2013 hasn’t produced much good news for the UK economy.  In February the credit ratings agency, Moody’s, stripped Britain of its treasured AAA rating and downgraded the country to AA1.  The reason cited for this blow to creditworthiness was ‘weak growth’, which had caused the UK government’s plans to fix the budget deficit to be knocked off track.

During a visit to precision grinding engineers Cinetic Landis Ltd. on March 7, the Prime Minister tried to reassure the public that by sticking to Plan A the economy will grow once more.  He confidently declared that, ‘as the independent Office for Budget Responsibility (OBR) has made clear … growth has been depressed by the financial crisis … [and] they are absolutely clear that the deficit reduction plan is not responsible’.  However, in a letter to David Cameron the very next day the OBR made certain that the PM understood that they do not think that at all.

Robert Chote, the watchdog’s head, set the record straight by stating in his letter that: ‘For the avoidance of doubt, I think it is important to point out that every forecast published by the OBR since the June 2010 Budget has incorporated the widely held assumption that tax increases and spending cuts reduce economic growth in the short term.

Framed by these two recent facts it is no wonder that the budget speech opened with the announcement that independent growth forecasts have been cut in half.  This year George Osborne told the House that growth would be 0.6%, which is half of the 1.2% that he predicted four months ago in his Autumn Statement.  What this means for the economy is that borrowing, although expected to fall eventually, will do so at a much slower pace.  In the longer term, it is predicted that as a result of this slow growth the national debt won’t fall as a proportion of national income until around 2017/2018, which is two years later than originally promised.

However, the outlook isn’t completely bleak.  The Chancellor wishes to address the issue of protracted growth and has done so by implementing a tighter than expected squeeze on spending in government departments.  It is thought that he will use the £2.5bn revenue raised to fund infrastructure developments throughout the UK, thus boosting the stagnant building industry.

Other good news came in the form of the cancelling the proposed 3p rise in duty on fuel that was due in September; personal tax allowances will be raised to £10,000 a year earlier than promised in 2014/15; and finally the beer duty escalator will be scrapped altogether and instead of a 3p rise in beer duty tax planned for this year the Chancellor cut it by 1p.

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