Today’s Budget was politically astute, with a surprise announcement that public debt as a share of GDP had been stabilised a year earlier than predicted and before the end of the Parliament. This was achieved mainly by the sale of £9bn of Lloyds shares and other bank assets nationalised during the crisis. More generally, lower-than-expected inflation has reduced the public borrowing forecast (compared with the Autumn Statement) in every year until 2018-19. The message: Britain remains very much on course to get the public finances in order.
The tax and spending changes announced in the Budget are, following the pattern of recent Budgets, numerous and tiny. They add up to a net tightening of less than £1 billion over the first three years and a net giveaway of just over £1.4 billion over the last two years. This was not a giveaway Budget.
Within these economic constraints the Chancellor crafted a Budget for maximum political impact. He raided the banks with an increase in the bank levy and the disallowance of compensation payments against corporation tax. He found some more money from anti-avoidance measures, and he reduced the tax relief on pensions by limiting the lifetime allowance.
He used the money raised in these politically painless ways to increase personal allowances, including a special new allowance for the first £1,000 of savings income, to freeze fuel duties, and to cut alcohol duties. The message: the government wants workers and savers to keep more of their own money.
Looking to the future, the much criticised ambition to run a £23bn fiscal surplus in 2019-20 has been moderated to a more modest £7bn surplus. This will allow an extra £13bn of planned public spending to reduce the scale of required cuts in departmental spending which many commentators had proclaimed unrealistically harsh.
Ann Burton, KPMG Press Office
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