A Macro Economic Perspective

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of Birmingham

“The Chancellor’s task in this Budget was by no means easy. On the one hand, there are real signs of strain in many public services and one would really like to allocate these worthy causes more resources. But, on the other hand, the public debt/GDP ratio is over 80%, and there is a budget deficit between 2% and 3% of GDP.”  

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The Chancellor’s task in this Budget was by no means easy. On the one hand, there are real signs of strain in many public services and one would really like to allocate these worthy causes more resources. But, on the other hand, the public debt/GDP ratio is over 80%, and there is a budget deficit between 2% and 3% of GDP. There is also the lamentably low rate of productivity growth in the economy and there are absolutely no signs of it increasing. The forecasts (prepared by the Office for Budget Responsibility) released in the budget confirmed that sluggish growth of productivity can be expected for a number of years.

The budget might be described as a ‘sticking plaster’ budget. In many of the areas in which there were calls for extra spending, and on some of the taxes which are most complained about, such as business rates, there were some measures.

It was predicted that housing which would receive major attention in the Budget, and it did. The most prominent reform was the abolition of stamp duty for first-time buyers on purchases up to £300,000. This will do a little to help some first-time buyers who otherwise would not have been able to buy property, but the effect will be fairly modest. For example, a household purchasing a property for £200,000 will see their stamp duty bill of £1,500 eliminated; it is difficult to believe that this measure will make a major difference to house purchase decisions.

So one might summarise the budget as making some very modest changes in the right direction, but there were no major changes, particularly in areas in which changes are sorely needed. But given the political constraints the Chancellor is under, major initiatives were not to be expected.

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