Optimistic growth forecast for UK
LONDON: Britain’s Chancellor of the Exchequer Alistair Darling yesterday unveiled in the House of Commons a budget for 2009 aimed at “helping the British people through the global recession and prepare Britain for the opportunities of the future.”
While initial reaction to the Budget was mixed, the three key features are the chancellor’s optimistic economic growth forecast for the UK economy of 1.25 percent next year rising to 3.5 percent in 2011; the planned 175 billion pounds of borrowing by the government for this year and 173 billion pounds for next year; and a new top tax rate of 50 percent for those earning more than 150,000 pounds a year from next April.
The budget came on the day when the government also announced the latest unemployment figures with another 177,000 people in the UK losing their jobs between December and February. To date some 2.1 million Britons are unemployed. The only glimmer of hope is that the number of people claiming benefits rose by 73,700 last month - a much smaller growth than expected.
The opposition Conservative Party leader David Cameron in a full frontal attack on the Labour government’s handling of the economy over the last decade or so, said the budget had not done enough to get spending under control and “Britain simply cannot afford another five years of Labour.”
He goaded the chancellor stressing that Britain’s public debt was the highest of the G-20 countries, and what the country needed was a change in government. The prime minister, he cajoled, could not solve the problems of the country in the future because he was not prepared to admit his mistakes of the past, and that he failed to preside over the end to “boom and bust” economics.
Darling’s hands are tied thanks to the raging credit crunch and the worldwide financial crisis which has resulted in a global economic slowdown the world has not witnessed in over 70 years. While critics are more concerned with the country’s burgeoning public finances, the Brown government’s strategy is to “invest out of the recession,” with the hope of saving further job losses and preserving essential manufacturing skills. Doing nothing now, stressed the chancellor, would mean spending much more in the future and as such resulting in a higher debt burden.
The Conservatives want a dramatic curb on government debt and seem to favor the recession taking its natural course. The opposition has not capitalized on Labour’s woes by failing to come up with an alternative and substantive economic rescue plan of action.
They also seem to be ambivalent whether they will maintain Labour’s public expenditure pledges for the next few years or whether they will cut back on this.
The problem for the government is that forecasting in a period of deep recession and global uncertainty is very difficult, something that impinges on credibility. The only mitigating factor is that even the International Monetary Fund (IMF), let alone the industrialized nations of the G-20, has had similar problems and been forced to revise earlier forecasts.
Only a year ago Darling predicted that the UK economy would grow by 2.5 percent this year. In yesterday’s Budget he forecast it would shrink by 3.5 percent in 2009. But he is confident that economic recovery will start at the end of this year through next year.
The projected budget deficit of 12 percent of GDP in 2010, the biggest since World War II, is bigger as a proportion of GDP than in any other major economy - compared with 8.9 percent in the US, 6.2 percent in France and 3.2 percent in China.
Analysts stress that the Chancellor’s optimism depends on whether his growth projections tally. If they do, then there is a realistic chance of the start of an upturn for the UK economy next year. But, most experts think the chancellor has again been too optimistic in his predictions, and stress that the budget deficit is unlikely to return to previous levels for a generation.
Yvette Cooper, economic secretary to the Treasury, speaking to the BBC stressed that the difference between this recession and previous ones is that the main economies of the world, the G-20, have come together for the first time to tackle the problems of growth, exports, financial stability, credit enhancement and banking reform head on. The world has already spent over $5 trillion in a spate of fiscal and economic stimulus packages to deal with the current crisis. As such, this collective effort on a global front means a better chance to mitigate the impact of the credit crunch and the economic recession.
“Firstly, there will be help now to get people back into work quickly, and support businesses and homeowners facing problems. Secondly, there will be measures to support investment in the growth and green industries of the future — while, as the recovery takes hold, ensure our public finances are sustainable. We will protect investment in schools, hospitals and other key public services — and we will work to rebuild our financial services. Taken together, this budget will build on the strengths of the British economy and its people, speed the recovery, providing jobs and spreading prosperity.
“In all of these decisions, we have been guided by our core values of fairness and opportunity — and our determination to invest and grow our way out of recession,” said the Chancellor.
Other features of the Budget include the government raising 15 billion pounds from “efficiency” cuts from 2010; extending the Stamp Duty holiday on properties sold for less than 175,000 pounds until the end of 2009 as part of a £1 billion package aimed at boosting house sales and building; the price of petrol to rise by 2 pence per liter from September; a 2,000 pound discount on new cars if people trade in cars older than 10 years from next month until March 2010; tax relief on pensions to be reduced for people earning more than 150,000 pounds a year from April 2011; to encourage savings the government has increased the annual limit for tax-free investment savings accounts (ISAs) to rise to more than 10,000 pounds for over-50s this year and for everyone else next year; Britain commits to cut carbon emissions by 34 percent by 2020 and an extra 1 billion pounds to help combat climate change by supporting low-carbon industries; the main capital allowance rate for businesses has been doubled to 40 percent and the government is to launch a new 750 million pounds strategic investment fund to help emerging technologies such as biotechnology; IT and digital technologies and advanced manufacturing.