Grant Thornton's chief economist responds to the chancellor's
pre budget report statement on the uk economy
Leading business and financial adviser Grant Thornton says that
the Pre-Budget Report (PBR), set out clear plans to reduce spending
and halve the budget deficit in the next four years, but was less
successful in installing much needed confidence.
Prospects for growth
"The Chancellor admitted today that the
economic recovery had not gone to plan, with GDP forecast to plunge
by 4.75% in 2009, significantly more than 3.5% forecast in the last
Budget in April," says Stephen Gifford, Chief Economist at Grant
Thornton.
Gifford notes: "The Chancellor failed to pull
a rabbit out of the hat to restore much needed confidence both home
and abroad. His PBR was largely neutral for 2010-11 as expected but
started to put the pressure on with tax rises of £3.5 billion in
2011/12 and £5.1 billion in 2012/13. But there was little detail
behind his projections and considerable reliance was placed on the
economy recovering quickly."
"With the UK the only G20 country whose
economy is still in recession, there is a serious risk that tax
revenues may not be as forthcoming as expected. Spending cuts
are notoriously difficult to implement quickly which means that the
next Government (whichever party) will be in a very tricky position
if this were to happen".
Public borrowing remains high for
years to come
"The path of the economic recovery is critical
to the Chancellor's plan to halve public borrowing. Although the
Chancellor did not change his borrowing forecasts much, the level
is still very high at £178 billion for 2009/10 and £176
billion in 2011/12. Lower corporation taxes from the
financial services sector and less stamp duty and income tax
revenue were the key reasons cited for plummeting tax revenues from
2009/10".
Government debt sizeable
Public sector net debt is set to peak at 78%
of GDP in 2014/15, more than double the amount (36%) that the UK
entered into the current downturn.
"The UK has overextended itself. The
Chancellor went some way to tackling the level of government debt
today, but did not go far enough. Whilst it may not be
sensible to cut spending in the midst of a recession, the markets
and the international community are crying out for a realistic plan
to restore confidence in the UK economy."
Tax rises could hinder UK
competitiveness
"The Chancellor today put the squeeze on
higher earners and bankers. Although well intentioned, it may
have the unintended consequence of harming the UK's
competitiveness. In such an interdependent global economy,
businesses and individuals can easily invest or relocate
elsewhere. It remains to be seen whether these tax rises will
lead to an exodus of talent offshore or whether high earners
knuckle down and accept the new reality."
For more information please contact:
Suvra Datta, press office for Grant Thornton UK LLP, on 0207 728
2375 or
Stephen Gifford, Grant Thornton Chief Economist, on 07814 421
899