On the eve of George Osborne’s sixth budget as Chancellor, a new poll listed the slogans voters dislike the most. ‘Long term economic plan’ was number 4 on the list. With little room for manoeuvre, yesterday’s Budget continued the ‘long term economic plan’ mantra even if actual policy has diverted somewhat from the original objectives set out in 2010.
Overall, there were few major changes which will directly impact Northern Ireland businesses.
The Chancellor sporting a grey tie was a further clue that this Budget was unlikely to provide any blockbuster announcements. Overall, there were few major changes which will directly impact Northern Ireland businesses – the main Northern Ireland reference related to the devolution of Corporation Tax which can now be switched on from April 2017 subject to the conditions of the Stormont House agreement being met.
The other points of direct relevance in the Budget were:
Otherwise, the biggest local impacts will be felt through the changes to the taxation of individuals and other duties. The personal income tax threshold is due to rise to £11,000 by 2017/18, whilst a new Help to Buy ISA will provide a substantial tax break to first time buyers, further boosting demand in the housing market with potential knock-on benefits for the Northern Ireland construction sector. The Chancellor also announced that the application of the fuel duty escalator has been put on hold again, providing a welcome benefit to Northern Ireland businesses with substantial transport costs.
As well as the tax and expenditure changes announced in the budget, the updated outlook for the UK economy and the public finances is also of importance to Northern Ireland businesses. The independent Office for Budget Responsibility now expects UK growth to be 2.5% in 2015 (a marginal uplift on the previous forecast), partly driven by the positive impacts of falling oil prices feeding through to lower inflation which is boosting consumer spending and investment. Stronger growth in the rest of the UK is a fillip to local businesses, given the UK is the largest external sales market for Northern Ireland firms.
The rise in sterling is creating significant pressures for Northern Ireland firms in competing in export markets.
The positive effects of lower inflation and higher growth have been outweighed to some degree for local businesses by the strengthening of the pound, particularly against the euro. The rise in sterling is creating significant pressures for Northern Ireland firms in competing in export markets. Other data released this week for instance showed that the output of the Food, Drink and Tobacco sector in Northern Ireland is down 8.1% year on year. The challenge to increase sales in existing external markets as well as develop new markets is as significant as ever for businesses here.
On the public finances, ‘austerity’ has dominated the political debate since 2010. When George Osborne made his first Budget speech, he aimed to eliminate the structural budget deficit by 2016. Five years on, the annual budget deficit remains close to £100bn and substantial further savings are projected well into the next Parliament. Whilst Northern Ireland will receive an extra £11m from Westminster in 2015/16 via the Barnett Formula, this is a very modest sum and the bigger picture is that public expenditure here is facing a significant squeeze in the medium term.
In summary, whilst the Budget included a number of positive items for business here, the economic and fiscal outlook reinforced the scale of the challenge to secure a more prosperous Northern Ireland. With a General Election now less than 50 days away, a further budget before the summer will almost certainly be required to be digested irrespective of the outcome.