Tough Budget ‘could be turning point’
THIS week’s tough Budget could be seen in future as a turning point in the restoration of the UK’s public finances and economy, a top economist at the CBI said yesterday.
Richard Woolhouse, head of tax and fiscal policy at the employers’ organisation, said Chancellor George Osborne had “moved quite a significant way” towards the twin objectives of achieving credibility in the public finances and creating a platform for long-term growth.
Speaking to the EADT ahead of the CBI’s East of England Annual Dinner in Cambridge, Mr Woolhouse said: “Our overall verdict on the Budget is positive.
“We have been calling for nearly two years for a faster consolidation of the public finances and preferably for this to be through spending cuts rather than tax increases. We feel a lot of this has been hit.”
On growth, the Chancellor had made the right move on Corporation Tax, setting out a “route map” for the rate to fall throughout the current Parliament ? also something the CBI had been looking for a number of years.
The decision to revisit the previous government’s planned changes in pensions tax relief, which the CBI viewed as “a complete muddle”, was welcome and the increase in the rate of Capital Gains Tax to 28% for non-business assets “could have been a lot worse”, said Mr Woolhouse, “We would have liked a broader definition of business assets but the increase in the lifetime limit for Entrepreneurs Relief to �5million will help some people,” he said.
It was inevitable that business would share part of the burden and, although some members were against the increase to 20%, VAT was probably the least damaging of the big contributors to revenue to increase, hitting consumption rather than investment activity.
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“I think this Budget could be seen as something of a turning point,” said Mr Woolhouse.
Although the forecast for economic growth next year had been downgraded from 2.6% to 2.3% as a result of the fiscal measures set out in the Budget, Mr Woolhouse said the tightening was the right decision in terms of confidence and long-term interest rates, allowing monetary policy “to remain looser for longer”.
The focus on sovereign debt in Greece, and also now in Spain, was taking control of events out of their hands. “In the UK, the Budget takes this risk out of the equasion,” he said.
The question of whether UK growth was strong enough to withstand the tightening was “a tough call” and lending to businesses by the banks would be an important factor in sustaining the recovery.
One area of concern in the Budget was whether the proposed balance sheet tax on banks would impact on the trend in lending.
However, the CBI believed that a “double dip” recession would be avoided, he added.