How does a developed western country with the second largest absolute current account deficit in the world and government debt at over 80% of GDP arrange its near term expenditure, revenue and economic drivers to simultaneously avoid a recession, woo a disenfranchised public and bolster investor confidence (even ignoring risks surrounding a possible Brexit)? According to George Osborne, Chancellor of the Exchequer, in his budget address earlier today it involves: further cuts in government spending (following reduced OBR growth and productivity forecasts), closing tax loopholes for multinationals and internet merchandisers, taxing sugary drinks, a more competitive corporate tax rate of 17%, developing infrastructure and other investment to support an anticipated “Northern Powerhouse” and a cocktail of benefits for savers and the “next generation”. Also, in a likely attempt to woo Scots, Mr Osborne boasted in “the broad shoulders of the United Kingdom” that enables him to cut the supplementary charge on oil and gas from 20% to 10% and effectively end the petroleum revenue tax.
With the world already familiar and serene in the face of the UK’s high debt levels and ongoing austerity, the markets will likely be neither impressed nor worried over the proposals (though incidentally following signals of reduced investor sentiment the DMO today announced it was introducing flexibility and reducing Gilt auction sizes). Projected 2016/17 expenditure is £772bn with £716bn in expected receipts. This leaves a forecast deficit of £56bn, or 2.9% of GDP, expected to fall to 1.9% in 2017/18 and then to 1% for 2018/19. The aspiration is then to reach a £10.4bn surplus by 2019/20. This effectively means the UK’s government debt will continue to rise from £1.56tn now to £1.67tn in 3 years’ time BUT then to drop to £1.66tn in the following year (rounded to 2 decimal places so that the change is noticeable assuming everything goes to plan). With the UK being considered one of the countries who are successfully addressing unsustainable indebtedness, today’s budget is a reminder of just how dire the situation is for the rest of indebted Europe - who lack the same prevailing investor confidence, economic strength or the governmental ability - to even envisage a successful deleveraging.
Further details of the budget are now widely available and will obviously have important consequences on personal budgets and national endeavours. Our question, stepping back from all the specifics, is whether the prospects of the UK really are as Mr Osborne concludes, “secure at home [and] strong in the world”? In comparison to the scale of indebtedness and public expectations that prevail in many developed nations, the challenges that many developing creditor nations are facing don’t seem quite so… taxing.