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Vote seeking to boost UK economy – Will the March budget be politically motivated?

Wednesday March 18th, will see Chancellor George Osborne’s final budget announcement of this UK coalition government; it’s a speech that many have predicted will include few of the vote winning giveaways that are usually expected in the run up to a general election.

But could the current economic ‘bounce’ result in some unexpected treats from Mr Osborne as the Conservative party strives to win a second term in office?

Since his last budget speech in the autumn of 2014, many areas of the economy have benefitted from the decreasing price of oil and subsequent deflation of many everyday costs. But is this a trend the Chancellor can rely on to deliver sustained consumer spending and will he actually have to offer tax subsidies to businesses operating in the North Sea oil and energy sectors?

This would certainly be a risky political move as many voters see the oil industry in a similar light to the banking sector – taking enormous profits for decades and then pleading poverty when their profit margins begin to weaken (this is very different from incurring actual losses, which would undoubtedly create more public sympathy).

So what sweeteners can the government give to businesses, that won’t incur the wrath of middle and lower earners who feel that big business has got away with too much for too long?

There’s talk of more investment in the growing northern powerhouse of Manchester – connecting it further with other cities across the north; both with a better transportation and communications infrastructure, but also with devolved powers over budget spending. Could this help to accelerate growth in all northern high streets and could it even help to regenerate smaller urban and rural areas too?

Overall it seems the Chancellor’s December statement that he was likely to deliver a “fiscally neutral budget” could actually be much more pessimistic than the March 2015 reality. And whilst he has refused to promise any specific tax cuts, there is a feeling that he could bring forward the personal tax allowance increase not just to the planned £10,600 but actually closer to his £12,000 goal originally penned for the year 2020.

If he does announce such a vote winning tax cut, it could vastly increase the money being spent on our high streets, and would actually only cost the government an estimated £6bn per year. This means the government would not only recoup that money via VAT on purchased goods, but retailers could also benefit from the increase in customer spending…   generating more jobs and more investment ( a win/win perhaps?)

Many commentators also predict that Mr Osbourne could increase the threshold for National Insurance, effectively creating a tax cut for all workers – but whether this would also apply to employer’s National Insurance is unclear.

But who would pay for these tax cuts in the immediate future as it often takes a while for consumer confidence and spending to rise?

One of the measures announced in his last speech was a so called ‘Google Tax’ (the Diverted Profit Tax), aimed at reducing the tax loopholes used by companies like Google, Amazon, Starbucks, Ebay and Facebook. The Chancellor is expected to flesh out the details as part of his strategy to win affinity with the ‘man on the street’ and smaller businesses who don’t have the accounting resources to shift their tax burden offshore.

In the end, it seems that the Mr Osborne who ‘took away’ in the Autumn of 2014 is likely to ‘give back’ something in the Spring of 2015 –  even if it is just a little.

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This entry was posted on March 13, 2015 by in Uncategorized.

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