Member Article

Jonathan Riley of Grant Thornton on the Budget

Jonathan Riley, senior partner for business adviser Grant Thornton in Yorkshire and the North East reacts to the Budget.

The Budget could mark a turning point for the UK economy. Good news was fairly thin on the ground but
for the first time in many years a Chancellor has not been forced to confess that the economic situation
has deteriorated since the last Budget. This was a minor cause for celebration.

A small 0.1% upgrade in economic growth to 0.8% for 2012 is far from something to shout about, but this
upgrade combined with a receding risk of a double dip recession is a step in the right direction.

The UK economy experienced a stronger than expected start to 2012, with consumer confidence
stabilising and the UK purchasing manager index pointing to positive growth for the next quarter. Falling
consumer price inflation, a partial resolution in the Eurozone crisis and growing optimism around the US
economy should all help us avoid falling back into a technical recession.

Economic growth is expected to strengthen to 2.0% in 2013 and to 2.7% in 2014. The Chancellor put
a lot of emphasis on recovery and growth in the private sector, unveiling and strengthening a myriad of
initiatives such as the Enterprise Finance Guarantee scheme, UK export finance and tax credits for video
games, animation and high-end TV.

Public borrowing is expected to be £127 billion in 2011/12, some £1 billion lower than the forecast in the
Autumn Statement. Borrowing will fall to £92 billion in 2012/13 and £98 billion in 2013/14. Public debt
will peak at 76.3% of GDP in 2014/15.

In many ways this was a political budget rather than one based on economics. The economic decisions
on the deficit have already been made and the Chancellor is sticking to them. Rather, the debate is
about where the tax burden should lie and particularly how much can be extracted from the rich without
damaging business confidence and harming the embryonic growth in the economy.

The Chancellor did as much as he could today to oil the wheels of economic growth, cutting a modest
£1.7 billion in taxes in 2012/13 paid for with further cuts in government spending in 2014/15, 2015/16 and
2016/17.

There were targeted tax breaks for the low paid with an increase in the personal tax allowance to £9,205
in 2013, a cut in the higher rate of tax to 45% from 2013 and a further 1% cut in corporation tax next year.
Long-awaited anti-avoidance measures were also identified, particularly the long-awaited Stamp Duty
Land Tax loophole clampdown.

The markets will draw comfort from the direction of travel around the deficit reduction. The tax cuts in this
Budget are unlikely to harm or hinder the fight to retain our AAA credit rating, but significant further tax
cuts financed by future spending cuts rather than economic growth will soon start to ring very loud alarm
bells. With the majority of the spending cuts due to take place in the next few years the Government
needs to first demonstrate that it can follow through on its ambitious austerity plan before planning further
spending cuts.

This was posted in Bdaily's Members' News section by Jonathan Riley .