In these unprecedented fiscal times the economy is at the forefront of the entire nation’s collective mind. Everybody is looking to the Government for strategies to help move us out of a recession, but we are all keenly aware that fiscal stimulus comes at a cost to the taxpayer – there is no such thing as a free lunch.
The key issue, as recently highlighted by Mervyn King, is whether or not the Chancellor will be able to reconcile the need to increase taxation in the medium term with the shorter term perception that further fiscal stimuli are required?
It will be of great importance for the Chancellor to indicate how, in the medium term, he intends to reduce the annual budget deficit. At the 2008 PBR, he forecasted this to be £77.6bn, £118bn and £105bn in 2008/09, 2009/10 and 2010/11 respectively, but this will certainly be far higher now due to multiple factors including falling tax revenues, bank bail-outs and rising unemployment.
There are a number of areas such as VAT, corporation tax and pension relief for higher rate tax payers, where the Chancellor may be driven to implement significant changes. We do not consider that this will be a budget of long term giveaways or sweeteners despite it being in the run up to an Election. We hope the Government can provide the nation with a vision for its fiscal structure enabling the regeneration of businesses and the sustainability of Government finances.
Now is the time for the Government to put economic priorities over political expediency. This will need to be a Budget setting out a road map for Government finances of medium term austerity.