Today the Coalition and the City sighed a collective
'told-you-so' as the new government's new economic watchdog, the
Office for Budget Responsibility, trounced all over Labour's
over-optimistic hopes for a speedy economic recovery. Darling's
economic growth forecast of 3.25% for 2011 was promptly knocked
down to 2.6% by the independent body, with 2012 and 2013 coming in
at an almost as modest 2.8% - again far below Darling's 3.5%
forecast.
In marginally brighter news, the OBR believe government
borrowing will be £155bn for the current financial year - which,
while still terrifying, is not quite as catastrophic as the £163bn
predicted by Labour in their March Budget.
What all this means is that George Osborne's talk of a need for
severe cuts to public spending are pretty well verified, and you
can expect to see some stern measures in the emergency Budget a
week tomorrow. Osborne hopes the private sector will become the
sponge of salvation for all those civil servants kicked off his
payroll, but he's going to have to do some serious work on helping
small businesses if he expects them to swallow the costs of extra
employees on their rotas.
Today the Coalition government and the City sighed a collective
'told-you-so' as the new government's new economic watchdog, the
Office for Budget Responsibility, trounced all over Labour's
over-optimistic hopes for a speedy economic recovery. Darling's
economic growth forecast of 3.25% for 2011 was promptly knocked
down to 2.6% by the independent body, with 2012 and 2013 coming in
at an almost as equally modest 2.8% - again far below Darling's
3.5% forecast.
In brighter news, the OBR believe government borrowing will be
£155bn for the current financial year - which, while still mildly
terrifying, is not quite as catastrophic as the £163bn predicted by
Labour in their March Budget.
But what all this means is that George Osborne's talk of a need for
severe cuts to public spending are pretty well verified, and you
can expect to see some stern measures in Tuesday's emergency
Budget. Osborne hopes the private sector will become the sponge of
salvation for all those civil servants kicked off his payroll, but
he's going to have to do some serious work on helping small
businesses if he expects them to add employees to their rota.
A VAT hike could be on the cards too: The Guardian wrote today in
response to the OBR's forecasts: "A sharp rise in VAT to 20%,
possibly staged over several years, is one likely outcome,
according to several economists." This would deal a hard blow to
retail, though may be preferable to an increase in National
Insurance for many of you.
"A move to push up capital gains tax to the 40% tax threshold is
also expected to be staged over several years," the Guardian
article continued. Again, this isn't great news. Increasing CGT may
be appealing to some in an idealistic Robin-Hood tax the rich to
help the poor kind of way, but it hurts start-ups looking for
funding from heavyweight investors, who are more likely to shift
the focus of their portfolios overseas if they feel victimised by a
tax on their capital gains. Hopefully, the natural Tory instinct to
rally round the country's wealthiest will kick in to stop this from
happening.
The prognosis for public sector contracts hasn't really been
commented on yet, but expect less of them to be available as
investment in new government contracts is stripped back to bare
essentials. Though a relatively small portion of you go down the
procurement path, be warned that you may feel the pinch in the
coming years.
The Forum of Private Business' head of policy Matt Goodman sums
things up thus: "These are more realistic projections of growth
which reflect feedback from our member businesses and the general
mood of the economy at the moment. The government has a difficult
task in this emergency Budget. While addressing the gaping public
deficit in order to stabilise the economy must be the first
priority this must be balanced with continued support for the
drivers of growth - small businesses. Today's figures from the OBR
do nothing but reinforce that fact."
A VAT hike could be on the cards too: The Guardian wrote today in response to the OBR's
forecasts: "A sharp rise in VAT to 20%, possibly staged over
several years, is one likely outcome, according to several
economists." This would deal a hard blow to retail, though may be
preferable to an increase in National Insurance for many of
you.
"A move to push up capital gains tax to the 40% tax threshold is
also expected to be staged over several years," the Guardian
article continued. Again, this isn't great news. Increasing CGT may
be appealing to some in an idealistic Robin Hood tax the rich to
help the poor kind of way, but it hurts start-ups looking for
funding from heavyweight investors, who are more likely to take
their portfolios overseas if they feel victimised by a tax on their
capital gains. Hopefully, the natural Tory instinct to rally round
the country's wealthiest will kick in to stop this from
happening.
The prognosis for public sector contracts hasn't really been
commented on yet, but expect less of them to be available as
investment in new government contracts is stripped back to bare
essentials. Though a relatively small portion of you go down the
procurement path, be warned that you may feel the pinch in the
coming years.
The Forum of Private Business' head of policy Matt Goodman sums things up thus: "These are more realistic
projections of growth which reflect feedback from our member
businesses and the general mood of the economy at the moment. The
government has a difficult task in this emergency Budget. While
addressing the gaping public deficit in order to stabilise the
economy must be the first priority this must be balanced with
continued support for the drivers of growth - small businesses.
Today's figures from the OBR do nothing but reinforce that
fact."