George Osborne delivered a politically adept speech against a backdrop of grim economic news, introducing tax cuts for business, a boost for home buyers and help for the 'squeezed middle' at a net cost of £140m, avoiding the cardinal sin of increasing net borrowing.
The OBR was quoted extensively with downward revisions in near term growth forecasts, with rosier projections two to three years out, a pattern established over successive budgets. Today's Matt Cartoon, takes a humorous look at the forecast credibility problem. http://jsy.fi/164maTI
There was a rabbit out of the hat with a forecast improvement in deficit reduction, now down by a third, although borrowing in 2013 will be the same as last year. However, in 2010 the Chancellor predicted the deficit would be down to £20bn by 2015, it is now forecast to be £96bn, almost five times as much. This means the national debt will keep rising well beyond this Parliament reaching £25,000 per head or circa £1.2trn before it begins to trend down. A pretty dire state of affairs.
With no reduction in prospect for absolute debt until post 2018, the possibility of the 'Standstill decade' is looming large.
Bringing debt down against this backdrop is storing up a mighty difficult feat with so many parts of government expenditure such as health and education protected from cuts. Investors are not punishing the Chancellor for the moment, but more bad news will surely see the bond markets begin to question Britain's Safe Haven status.
In my pre budget blog I predicted a focus on Trade, Tax and Transparency and given the acres of budget coverage, I will focus commentary on these three areas.
Business will have been cheered by the further reduction in corporation tax, national insurance reductions, and the AIM exemption from Stamp Duty. In terms of trade this should encourage more international business to locate in the UK, although these attractions have been tempered by the assault on multi national corporations over their tax affairs.
The budget did very little for exports and will not help the UK trade its way out of the current malaise. Banks were hit again and given that the financial services trade surplus is greater than all other sectors combined, the temptation to play to the gallery proved too strong. The Chancellor has clearly been told by his advisers that there are no votes in supporting Britain's leading export industry.
On tax the 1% reduction in corporation tax produced the lowest rate of any major nation, and completed the reform set in train in 2010. Were it not for the uncertainty around GAAR, tax avoidance and significant other indirect taxes such as national insurance and business rates, this could have had a big impact.
I fear it will not, as international business sees that for every £1 in corporation tax, business pays another £2 in indirect taxes, with multi national corporations publicly pilloried for not paying more.
The move to a £10,000 personal allowance in 2014, childcare help, a token reduction in beer duty, and the £130bn Home Buying boost, were clearly the beginnings of an election 2015 strategy, aimed at wooing Middle England.
Overall, the budget is fiscally neutral so there will not be too much impact on growth, especially in the near term.
The expected measures to strengthen the fight against tax evasion materialised with the three Crown Dependencies all having indicated a willingness to enter into automatic information exchange on UK residents. The OTs and the G8 next.
The Chancellor claimed a benefit of £1bn over 5 years or £200m per annum, frankly akin to searching the back of the sofa for small change in the overall scheme of things. In reality, a relatively modest balancing item to fund giveaways without borrowing.
What does this mean for Jersey? It could mean very little or a great deal, depending on how these agreements are concluded, and whether we see the emergence of a level playing field. More here on the implications of UK FATCA.
The crucial point here is whether Jersey has to report at a level that exceeds the information that the UK would require from its own residents. The most sensitive population will be the non doms, who have lived in the UK for up to seven years, or are claiming the remittance basis of taxation through paying an annual charge.
This group will generally only report value held in the UK together with remittances, and Jersey should not agree to data collection on this group that exceeds these requirements. Nor should it accede to pressure from other countries to enter into automatic information exchange until and if it becomes a global standard.
Provided these principles are observed, the addressing of any small legacy problem on non disclosure by tax evaders is welcome.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.