Grant Thornton's chief economist responds to the chancellor's
emergency budget statement
The 2010 Emergency Budget was the Chancellor's big debut and it
was a serious but upbeat occasion with George Osborne highlighting
how the economy has been managed irresponsibly by the previous
administration and now needs unavoidable change around benefits,
taxation, pensions and government spending, says leading business
and financial advisers Grant Thornton.
With the Chancellor relinquishing his responsibility for
economic forecasting, he set out the economic and fiscal
projections from the Office of Budget Responsibility (OBR) and then
focused on his plans for tax and spending over the coming
years.
Stephen Gifford, Chief Economist at Grant Thornton
says:
Addressing the deficit
"The Chancellor walked a tightrope today, balancing the need to
reduce the substantial budget deficit with the equally important
requirement not to harm consumer and business confidence and push
the economy back into recession.
"The Chancellor will not be winning any prizes in the popularity
stakes after today's budget. But the sweeping cuts and harsh tax
rises will certainly instil much needed confidence in international
financial markets and go a long way to averting a damaging
sovereign debt crisis.
Tax rises and spending cuts
"The Chancellor announced the equivalent of £8 billion in annual
tax rises by 2013/14 through increases in VAT, capital gains and
the new banking levy. Current receipts are 37.2% of GDP this year
and predicted to increase to 38.0% in 2011/12 and to 38.4% in
2012/13.
"But it will be around public expenditure where the challenges
reside. Spending reductions of £32 billion per annum by 2013/14 are
much worse than the drastic cuts of the early 1980s. Given
commitments around health spending, unprotected departments are
likely to have a mountain to climb over the course of this
Parliament.
"The Comprehensive Spending Review will provide more meat on
where exactly the cuts will fall. At that point, the civil servants
running departmental budgets are likely to want to run for
cover."
The economy
"It really was a case of pain today for profit tomorrow. The
economy is still in a precarious position but this robust deficit
reduction plan should keep interest rates low and help maintain the
economic recovery.
"Economic growth of 1.2% is expected in 2010 and 2.3% in 2011.
This is somewhat lower than the OBR's forecasts last week of 1.3%
and 2.6% for 2010 and 2011. But they are some margin away from a
new recession with growth actually predicted to be higher in 2013
and 2014".
ENDS
For more information please contact:
Suvra Datta, press office for Grant Thornton UK LLP, on 0207 728
2375 or
Stephen Gifford, Grant Thornton Chief Economist, on 07814 421
899
Notes to editors:
Live Webinar
We will be running a live interactive internet seminar (webinar)
at 4.00pm on June 24, with a panel of experts who will be
commenting on what the announcement means for the UK economy, taxes
and the public sector. Viewers will be able to email questions in
to the live discussion.
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