UK Budget 2013: Sailing a steady course

In challenging economic times, the Chancellor needed to announce a confident, stable Budget based on sound, practical economic decisions that would send a message of confidence to businesses. So has he delivered on this?

A positive tone

Figure 4 – The quality of UK infrastructure is less than that of the fast-growing Asian tigers

Figure 4 – The quality of UK infrastructure is less than that of the fast-growing Asian tigers

We expected a Budget with a strong emphasis on supporting the UK being “open for business”. The Chancellor did indeed talk about building the most competitive tax system in the world and of a desire to support the entrepreneurial spirit in the UK. He backed this up by announcing that corporation tax would come down to 20% and by giving more support for research and development (R&D).

He also announced an employment allowance for the first £2,000 of a company’s National Insurance bill which will benefit all businesses, particularly small and growing businesses, wanting to take on staff. 

One more thing he committed was to spend more than previously planned on infrastructure (by around £3bn a year from 2015 onwards) which could provide some medium-term opportunities for businesses in the construction sector. It could also help to close the “infrastructure gap” between the UK and the Asian Tigers (see Figure 4).

Supporting growth but debt target pushed back a year

Even though the Budget was presented as being fiscally neutral, the latest OBR forecasts show that the projected total public debt stock in March 2018 is now £103 billion more than expected at the time of the Autumn Statement in December. So the Chancellor is allowing the public debt stock to continue to climb, pushing back the date at which the debt ratio peaks by a further year to over 85% of GDP in 2016/17.

Overall, we expect the Budget measures to have a modestly positive impact on business confidence and growth in 2014-15, but they are not large enough to produce a major change in the UK economic outlook.