The Office of Budget Responsibility's predictions: what they mean for you

 

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."


 

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