A Budget for Growth?
Professor Joe Nellis
Andrew Kirchner
To discuss Wednesday’s budget, I am joined by Professor Joe Nellis. Was
it a budget for growth?
Joe Nellis
Well the Chancellor said it was a budget for growth and there are many
factors which point to that. For example, 2% point cut in corporation tax,
that was clearly aimed at stimulating not just investment by British
companies, but by foreign companies and that should help support
innovation.
There were a number of other things of course. He also brought in
support for first time buyers, that should help the house building industry,
to be paid for, of course, by other parts of the economy.
So on balance, i don’t think he could have done much more for growth,
although some would argue he could have, for example, brought in capital
gains tax relief on corporate investment.
I think on balance it was quite good for growth.
Andrew Kirchner
The OBR Forecast was revised down from 2.1 to 1.7% – do you think we
are going to hit that or is it going to be a weaker recovery?
Joe Nellis
This is the big worrying point; that downward revision was quite
significant and it is still above the OECD’s forecast for the UK which is
1.5% for the coming year. So I think probably he is on the upper side of
the range of estimates. I would think that OECD is probably about right.
The danger therefore is that if growth is less than what has been put into
the budget then tax revenue will be less, which means we may be facing
more spending cuts in the future.
So there is a big question mark around this and that is a worrying point,
especially if its year on year on year which means the budget deficit will
not fall as fast as the government would like. So i am hoping he has got it
right, I suspect that he is on the optimistic side.
Andrew Kirchner
So, some crumbs of comfort for us motorists – the fuel duty rises are
being postponed but there is now this windfall tax?
Joe Nellis
Yes, the oil companies of course are going to pay for this by paying
another £2 billion in what is called a supplementary tax. They are not
happy about it and that is not surprising, but let’s be clear, over the last
few months and the last year or so, world economic events have actually
led to a significant rise in the price of a barrel of oil. So oil company
profits have increased significantly; the extra £2 billion is not going to hurt
them, the question is of course, are they going to pass it onto the
consumer? Several have said they will not do that; I tend to agree with
that statement, however it doesn’t mean that oil prices and petrol prices
will stop rising because world events will dictate what happens to the
price of oil.
Andrew Kirchner
Joe, thank you very much indeed.
Joe Nellis
Thank you.