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Everyone seems desperate to scribble something about the budget (including us here at Fathom).... Furlough extended, tax allowances frozen, corporation tax up, universal credit extended....
So what should the conversation be about and what should have been in the Budget? Or was it just about right?
There has been much hand-wringing about the extra £20 per week of universal credit ending in 6 months, without any acknowledgement that it was increased to support families at the beginning of the pandemic. Surely, by September, we will be on the road to recovery and this “top up” to an existing benefit will no longer be required. The focus of opposition parties and backbench MPs should be on reforming the stupid system that sees families waiting 5 weeks to get the benefit in the first place... Often having to borrow money. How absolutely ludicrous that when people need help the most, our solution is to extend borrowing to them. The system needs reform and quickly.... And yes, I’m certain that shortening waiting times will lead to some abuse of the system, but so what! People have abused the furlough and loan schemes to a far greater extent than a family would by getting some benefits early!
Furlough and loans... the Government has performed remarkably well in these areas. They even gave the self-employed an opportunity to submit tax returns after the deadline (if they’d forgotten to do so!), to qualify for payment. Some people fell through the cracks and this budget has addressed that as best it can. Well done, Chancellor.... But all of this money has to be repaid at some point, right?
So, tax rates are going up. Good! This is an acknowledgement that we are accruing excess debt and need a route out of it. A circa 32% hike in corporation tax rates deferred for a couple of years is the right way to go. If the economy booms and tax receipts improve, these announcements can be reversed. During our online seminars in August 2020, I was asked “Who would pay for the pandemic?”, and I mused that it would/should be corporations. Why? Because most businesses have benefited from Government support in one way or another. The tax hike has been designed to hit companies, not pockets, and only fully if profits exceed £250,000. And what a stroke of genius to introduce the “super-deduction”, offering firms with strong balance sheets the opportunity to invest, which should translate to increased productivity and growth.
Will extending the stamp duty holiday keep the housing market bubbling along? You bet it will! And the 95% mortgage guarantee for first time buyers will certainly help. In a consumer driven economy like ours, the Government want (need) people to buy houses. When they buy houses, they do things like buy new carpets, furnish the new bedroom, buy some paint so that they can put their own stamp on their new home. The Government takes housing very seriously. It’s rumoured that they did a recce of the type of property available in and around Darlington before choosing the town to host the New Treasury North.
And so to “levelling up”... This was a promise made to areas of the United Kingdom when the Tories won their landslide victory in December 2019. Is it underway? Is it enough?
What does moving the New Treasury North to Darlington really mean... Jobs! Prospects! No doubt Treasury North will need a nice shiny new building that will come in over budget, but so what, they all do! Just look at Holyrood, the Scottish Parliament building, estimated build costs £40m, final cost of £414m and 3 years late! I’m not suggesting we’ll get anything so grand, but I’m equally sure it will keep a few of our local brickies and plumbers busy for a couple of years. But what about the longer lasting impact... We have a number of very good Universities in the North East (OK, I’m biased), and the South manages to suck North East talent away because of the promise of bigger and better things in the “smoke”. Well not anymore!
And what of Freeports? We’ve had them before and in fact still have free zones here in the UK for certain industries like bio-sciences in Manchester, or advanced manufacturing in Tees Valley. So what’s the difference now?
The Chancellor, Rishi Sunak, understands them. He knows that creating them free from the burden of EU regulations and red tape can help create as many as 86,000 jobs for the British Economy. How do we know this? He said so in his paper “The Free Ports Opportunity” in 2016. Let’s hope he’s right!
So was the Budget about right? The Government is supporting families and jobs in the short run with a focus longer term on their levelling up agenda and economic recovery. Could they have talked about healthcare, probably. Should they have, no, not right now. We’re (hopefully) coming to the end of this pandemic. Let's reflect and evaluate our healthcare system when we have the luxury to do so... Should the budget have provided more money for schools? Probably, the Government should prioritise this essential area and (hopefully) they are discussing with Teaching Unions how to reverse the impact of the pandemic.
Let’s hope Mr Sunak has called things correctly and that his optimism about the UK economy is not unfounded and (the biggest task) that he can manage to keep inflation at a level that inflates the Government debt away (slowly) but not to the extent that the Bank of England needs to raise interest rates and increase the cost of the Government's borrowing.
That’s all for now, maybe some more on inflation in future blogs, especially the impact of Mr Biden’s 1.9trn stimulus plan...
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