March 24, 2015, by Charlotte Anscombe

Is the sun really starting to shine? Professor Wyn Morgan from The School of Economics looks at last week’s budget.

There is always something of a different feel about the build up to a pre-election budget. Where does the economics end and the politics begin and indeed is there any economics in it at all? Given the recent era of austerity, last week’s budget was perhaps even more eagerly anticipated than others but ultimately from an economist’s point of view there were fewer rabbits pulled from the hat than might have been expected.

There were so many potentially competing calls on the limited wriggle room the Chancellor was given by a period of low inflation and some growth prior to the budget – housing, pensions, energy, businesses – so which way would he turn? The biggest general issue was around the continuation of the austerity approach to bring spending down and there is a belief that surplus should be attained by 2019 but smaller than previously stated. There will continue to be downward pressure on spending in government departments and the long running focus on welfare reductions, perhaps the most contentious part of austerity over the last five years. This continued squeeze does not mean there are no boosts to various sectors of the economy though.

Housing has seen short supply and high demand leading to rising prices and difficulties for first time buyers to get on the housing ladder. Interestingly the Chancellor chose to support this group through a housing ISS will be welcome but it will act as a demand stimulus which generally will create further price pressure. The outcome of this measure might not be as great a benefit as expected.

Stimulation of consumer spending via changes in the tax threshold could be argued to be offset by encouragement for savers throw increased ISA allowances. Clearly a big change though is in retirement arrangements and the move away from annuities. The impact of this legislation on the annuity market could be substantial with some predicting the market will disappear as most pensioners opt to take cash when they retire. The specific boost for the gaming industry is an interesting one given the expertise in the UK and is a sector characterised high tech, high value and export generation all of which are key to future growth in the UK economy.

Overall a budget that promised much given the Election but which was neutral in its impact on the government coffers; offered some hope to specific groups but where the benefits might not be huge and ultimately this was still a budget about austerity.

 

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