Uncategorized March 26, 2012

The 2012 Budget

With the Budget 2012 now released, Vistage speaker and behavioural economist Roger Martin-Fagg has provided Vistage with his take on this years's Budget. Our strategic alliance partner Smith and Williamson provide a complete overview of the budget which can be downloaded here. It's also available for Vistage members on the Vistage Village, where they can participate in the discussion.

It has been forgotten that the purpose of the budget is to show how the things people have voted for will be paid for. It has not been used as a means to stimulate the economy since 1976, when James Callaghan announced that Government cannot determine overall economic performance.

The economic context this year is poor. Overall spending in the economy should be rising at 5%. It is only managing 2.7%. The budget will not improve this. The OBR assume 0.8% real growth this year ( this assumes overall spending will rise by 3.8%) and next year they assume we will be back to normal at plus 5% nominal, 2.7% real. This is overoptimistic, next year will be at best 1% real, 3.5% nominal. The deleveraging of household balance sheets continues.

For me there are two key announcements. The first is that planning consents will be biased in favour of development. This should speed up planning requests and allow the creation of physical assets. The second is the plan to show each tax payer where their money is being spent. This should stimulate informed debate, so that the British realise thay cannot afford the current size and breadth of Government provision.

The much publicised robbing of the pensioner is an adjustment long overdue. It is surely absurd that a young person starting out in working life gets just under 10K of tax free income, whereas a pensioner gets 12k ( and free bus pass, fuel allowance, free prescriptions).

The reduction in the headline rate of corporation tax is more sensible than a panoply of reliefs for innovation, investment, employing youngsters etc. Although the patent box is a good idea, it will probably cost the user professioanl fees equilvalent to the corporation tax saved.

The principles of taxation are that the tax should be easy to collect, very difficult to avoid, and it should not kill the human spirit. Osborne has begun to make a little progress along that road, but so much more needs to be done to simplify our overcomplicated, inefficient, loophole infested system.

Will the budget unleash the stash of cash held by UK businesses?  No, but as time moves on, there will be a slow increase in business investment, primarily because things wear out.

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