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BUDGET 2008

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Professor Rodney Barker| (Government Department)

Photograph of Professor Rodney Barker'Alastair Darling has the disadvantage of taking over a role which for the last ten years was filled by a parallel Prime Minister, whilst he seems only the junior understudy. Budgets are not usually very exciting, so to add to the un-newsworthiness of a few pennies on cigarettes and alcohol, or not a few pence on petrol, there is the relative un-familiarity of the presenter. Standing on the shoulders of giants is not a particularly effective pr move if the giant is still around.

'The only chance for a Chancellor to make their budget sexy is to make a small step in a large direction, such as a substantial shift to green taxation. But Alastair Darling has done little more than a step to the left, a step to the right, doing the time warp again, ending up not so very far from where he started off, and not facing with much determination in any particular direction. Not so much softly-softly, catch the monkey, as softly-softly don't frighten too many monkeys. Stability was a word he inserted again and again into his speech, since the alternative to being exciting is being reassuring.'
 

Dr Ian Roxan| (Law Department)

Photograph of Dr Ian Roxan'This is only a pale green Budget, but the Government is showing that it wants to try to rebuild its bridges to business.

'On the tax side this is only a pale green Budget: the fuel duty increase is understandably postponed until October 2008. The climate change levy goes up with inflation. The new car showroom tax does not come in until 2010. And the new per-plane air travel duty will not come in until November 2009.

But the Budget does try to rebuild bridges to business. The new rules for non-doms are significantly watered down, although the £30,000 charge remains, and there is a promise not to tinker further with the regime. New 'principles-based' anti-avoidance rules on some business transactions are postponed for further consultation, as are the 'income shifting' rules that would affect family businesses. While keeping the new 21% corporation tax rate for small businesses, the Budget proposes a number of measures to make taxation easier for small businesses to cope with.'
 

 

Tony Travers| (Director, Greater London Group)

Photograph of Tony Travers'The Chancellor is clearly straining to be optimistic with his predictions for the future of the economy and public finances.If things go as well as he hopes, Britain will be getting off lightly from the economic downturn that is expected.

'As far as the environment is concerned, it's clear that the Government remains more concerned with its own electoral prospects than the impact of global warming.'
 

 

Dr Linda Yueh| (Centre for Economic Performance)

Photograph of Dr Linda Yueh'In an economic slowdown, economists look to macroeconomic policy (monetary and fiscal) to stabilise the downturn and guide the economy onto an upward path. So, judging the Budget speech on these criteria, it seems that what is important is what is left unsaid.

'First, the Chancellor presented the UK as being well positioned to weather a global economic slowdown but didn't say much about contending with the potential of slow growth and rising inflation. He mentioned that inflation will be higher than the 2% target this year but will return to the target by 2009. What wasn't said was that interest rates might not come down as fast as some would like during a time of economic downturn. We may not return to the early 1990s, but are we in danger of returning to the 1970s? I suspect that we're not if inflation expectations can be managed. Affirming confidence in the Bank of England's 2% inflation target and keeping public sector pay in line with the same are all measures intended to maintain those expectations and therefore stability. After the recent Northern Rock debacle, more said here would do more to bolster confidence in the monetary/financial authorities.

'Second, the UK's overall debt and deficit positions, according to The Institute for Fiscal Studies, have not improved as much as comparable industrial economies - a point also raised by David Cameron. The last budget emphasised fiscal neutrality in that tax cuts/giveaways were met by tax rises, but that was not mentioned this time. It's perhaps not surprising in the current economic climate that there are tax rises proposed from green to sin taxes to fill a borrowing deficit but a deficit nevertheless. This omission, though, suggests the budget is stimulative now in the midst of the economic downturn but could well turn out to be a net tax raising budget over the medium term. It's the fiscal rules as fiscal strait jacket - hopefully not so tight as to preclude fiscal stimuli if the growth forecasts turn out to be too optimistic or revenues disappoint given the sluggish financial sector in the coming year. On the whole, of course, fiscal discipline is necessary - this is something that should have been looked at in the years of surplus.

'Finally, the growth forecast downgrade is not unexpected, but is still a respectable rate of growth given the close ties to the USA. The forecast for the next three years predicts that the UK both avoid recession (even though the USA is on the brink and since WWII, the UK has followed the USA) and grow at or near the trend growth rate (1.75-2.25% in 2008, 2.25-2.75% in 2009, 2.50-3.00% in 2010). Not much was said about how the UK will grow. Mention was made of growing via exports of services, but that will be to a slowing global economy in the grip of a simultaneous real and financial sector slowdown in the world's largest economy. It's not impossible, but the reorientation to (much poorer) consumers in emerging economies will be required. Lots of measures were announced targeting small and medium sized enterprises. This looks like the source of domestic growth the Chancellor is aiming for, and a suitable one, if consumption remains robust and businesses are not deterred by a range of tax changes that have not been popular.

 'To wrap up, there are good medium-term goals in the budget, including the commitments to eradicating child poverty, improving education, encouraging saving, promoting carbon reductions, and investing in infrastructure. The Chancellor just didn't have much manoeuvring space. What was interesting (to economists anyway) was what was unsaid - about the coordinated use of monetary and fiscal policy to fine tune the economy during what will certainly be a turbulent year.'
 

 
Professor Willem Buiter| (European Institute)

Photograph of Professor Willem BuiterProfessor Buiter's budget blog  http://blogs.ft.com/maverecon/2008/03/a-make-work-budget-but-it-could-have-been-worse/|

 

Photographs of London 

12 March 2008

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