UK budget to set fiscal tone for next 5 years
01:00, 06 juli 2015
· Av CMC Markets
This week's summer budget has been deemed unnecessary in some quarters, coming so soon after the one in March, but it matters in the context of the Government's fiscal priorities over the next five years.
Since 2010 the Conservatives have been encumbered by the restraining influences of their coalition partners, the Liberal Democrats, and the recent May vote now means the Conservatives can now go about setting the scene for the next five years, and their vision for the UK economy, against a backdrop of the fiscal crisis in Europe, and the Greece crisis.
In the budget on Wednesday Chancellor Osborne will need to walk a fine line of keeping the economy growing at a decent rate, while at the same time cutting back sharply on the incessant rise in public spending, and in particular on in-work benefits which continue to divert resources from more critical areas.
Non protected Whitehall departments are likely to be in the firing line once again, while tax allowances around pensions and inheritance tax are likely to be looked at with reports in the Sunday papers that the inheritance tax threshold could be raised to £500k per person.
Some measures are likely to be controversial, particularly cuts to higher rates of tax, but on the other side businesses will be looking for additional help in tackling extremely high business rates, as well as any additional investment spending on infrastructure projects, to help keep the recent rebound in economic activity moving forward.
Last week's UK economic data pointed to a slowdown in the manufacturing sector, due to the recent turmoil in Europe and the strong pound, while the services sector continued to remain robust.
The uncertainty in Europe has seen the pound benefit from some safe haven inflows helping it to its highest levels since 2008 against the euro. This strength is likely to mean that the Bank of England is unlikely to be looking at raising rates anytime soon for fear of driving the pound even higher.
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