The 2011 Budget – a response

Civitas, 23 March 2011

‘The Budget for Growth’ was how Chancellor George Osborne described it. Really? Of timid growth perhaps, but not the real growth Britain needs to see. Moreover, it has prioritised unrealistic green targets over economic development – a highly unwise manoeuvre. Below, the good, the ok and the really bad points of The Budget are unravelled.

The good points:

• The cut in Corporation Tax by 2%, double the original proposed cut, is a very welcome move. It shows the UK is serious about becoming the business regime of choice for companies and the 2% reduction should continue annually with the rate eventually falling below the proposed 23% limit.
• Similarly, the freeze on regulation for firms with 10 or fewer employees is a positive step, especially since the majority of UK companies will enjoy the benefits. Larger firms often have special staff who deal with regulations, but in these smaller companies, it often falls to the boss to deal with them, wasting their time and effort.
• The creation of 21 ‘Enterprise Zones’ has the potential to be very effective, provided they are carefully planned and implemented without ‘picking winners’. If they are applied to existing centres of success such as Teesside, the effect will be highly beneficial.

The neutral points:

• The freeze on personal tax rates are technically better than nothing, but we need more than ‘better than nothing’. Keeping the 50% rate was a bad idea, and the promise to reassess how much this raises isn’t really a help. As previously argued, the rate must be scrapped if more entrepreneurs and investments are wanted.
• The £100m fund for science facilities is all very well, but the Government must remember that R&D isn’t the be all and end all of innovation. A significant if not larger source of innovation is informal, thought up by employees on the job or the refinement of existing production processes. Many non high-tech industries will be unable to take advantage of the fund, reducing its impact.

The very very bad point:

• The worst measure to come out of the Budget was the confirmation that the UK will soon have a carbon price floor. Britain will then become the first nation with this artificial cost, which will cripple our vital energy intensive industries. Not only is the EU paying more in terms of carbon emissions than the rest of the world, but Britain is now paying more than the EU and will become the most expensive place to use energy in the world.

This is nothing short of disastrous. Should vital contributors to the economy like the £60bn chemical industry collapse, 600,000 jobs, 15% of exports and £17.1bn GVA per annum will be lost. The price floor makes this ruin a case of when not if.

What are the key ingredients for growth? A measure of entrepreneurial spirit served with slow roasted (read long-term) investment incentives. Add a dash of capital goods tax relief, place in a tray of low energy costs and leave to cook for 5 years. The Budget didn’t serve up this recipe, but at least it didn’t make things much worse in most areas. The carbon price floor though is a very different story. We can only wait and see how damaging it will be.