Chancellor George Osborne takes a punt on UK growth in last year of Parliamentary term
FITTINGLY given that it's Cheltenham Festival week, George Osborne took a massive punt yesterday.
In a Budget that was generous though not give-away, the Chancellor is taking around £9 billion from large companies between now and 2019 and giving £7 billion back to small firms.
But in that last year he expects to collect his winnings, which will include around £3.5 billion of efficiency savings from unprotected government departments.
And he's backing on his ability to stimulate small business growth and support domestic consumption in the hope of getting it all back in that final year of the current parliament.
Northern Ireland will benefit from £223 million of new money under the Barnett consequentials as a result of Chancellor Osborne's eighth Budget presentation in Westminster.
His UK-wide move to cut the rate of corporation tax from its current level of 20 per cent to 17 per cent by 2020 will also benefit the north.
Stormont is due to introduce its own rate of 12.5 per cent in April 2018, and the reduction in the UK headline rate will mean it will cost possibly tens of millions of pounds less for the north to implement the fiscal power, which it believes can create at least 20,000 jobs over the next decade.
"You could say this Budget was perfectly timed for Cheltenham week," PwC's Northern Ireland chief economist Dr Esmond Birnie said.
"Mr Osborne has certainly taken a punt. But with all this generosity, who pays?"
He said the threat of more public sector austerity may drive ‘digital by default', forcing departments and public bodies to invest in technology to release staff from processing and citizen-facing roles.
As for the £223m coming the way of Stormont, Dr Birnie added: "It's not a lot over four years, but it will focus the minds of a new Assembly on how to use what monies they have to rebalance the economy and drive a recovery that seems to be slowing.”
PwC tax partner Martin Fleetwood said the announcement that corporation tax will fall to 17 per cent in April 2020 may not take too much of the gloss off the First and deputy First Ministers' St Patrick's week trip to the USA where they are trying to woo investors with the proposed cut in the Northern Ireland rate to 12.5 per cent in 2018.
“Having a UK rate potentially less than half that of the US, and a Northern Ireland rate matching that of Ireland, will certainly get the attention of American investors," he said.
“And, just maybe, a cut in the UK rate to 17 per cent might persuade the Executive to take the rate even below that of the Republic. Could a 10 per cent corporation tax rate be a possibility? It would certainly be affordable.”
Mr Fleetwood says that from a Northern Ireland perspective, the Budget statement was a welcome relief from some of the sire warnings of wholesale cuts.
“The £4.5m to pump-prime a long-awaited air ambulance, enhanced tax benefits for the Coleraine enterprise zone, and an increase in the basic rate tax threshold to £11,500 from Aril 2017 are all welcome," he said.
“The introduction of the new lifetime ISA will be welcomed by young savers, while the absence of any increase in beer and spirits will be keep most drinkers – other than wine fans - reasonably content.
"Small businesses continually tell us that simplicity and clarity in the tax system would make a huge difference. The business tax roadmap is a step in the right direction through dedicated HMRC phone lines, online forums and targeted support to high growth businesses.
“It will be even more interesting to see how the government responds over the coming months to the report by the Office of Tax Simplification on small business taxation which contains some more radical ideas."
He added that the Chancellor's move to freeze fuel duty, would save the average motorist around £75 a year and as much as £270 a year for a small business with a van.
“The Chancellor's decision to take the high road and not the well-trodden path will be warmly welcomed by motorists, hauliers and small business owners alike.
“Freezing fuel duty for the sixth year running is undoubtedly a surprising and populist move. And given the current oil price and no indication of upwards price pressure, it also seems a generous policy.”