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Q&A: Understanding the budget with Simon Ward

  • 23 March 2012

 

Q) "Bearing in mind the Experian Survey for the BBC published on March 19, what are your views on the degree of assistance via the government to enhance a) business conditions generally and b) assistance with exporting.

A) The government could do more to boost business confidence by tackling excessive regulation, focusing spending cuts on current outlays rather than investment, and easing pressure on the banks, so improving credit supply. The Budget was disappointing in these respects. Exporters are benefiting from a cheap pound.

 

Q) Do you think the chancellor has done enough to free business from the burdens and barriers that are holding economic growth back?

A) The government's actions on deregulation have fallen short of its rhetoric and it has failed to articulate any wider growth strategy.

 

Q) As a nation's employment level can reflect its relevance in the global economy, do you think today's budget has done anything to improve the UK's job prospects?

A) Positioning the UK as a low corporate tax economy should boost jobs in the long term but there wasn't much else to cheer. The best way of stimulating employment is by lowering individuals' marginal income / NI tax rates, thereby increasing incentives to work and start new businesses. Despite the Chancellor's claim that the budget offers the country an opportunity to "earn its way out of debt", yesterday's changes cut the marginal rates of relatively few taxpayers and increased them for some.

 

Q) Is it really as simple as removing restrictions on business. Is it possible that removing some restrictions can harm some firms?

A) Removing restrictions might harm inefficient firms by increasing competition but this process would result in a more efficient allocation of capital and labour across the economy, implying a long term net gain. Of course politically many of these changes may be unpalatable, especially in a coalition government.

 

Q) Will proposed changes to tax breaks have any effect on the wider economy?

A) A properly tax-reforming Budget would get rid of tax breaks and reliefs in order to slash marginal tax rates. The changes announced yesterday were minor and motivated more by politics than economics in my opinion.

 

Q) Do you buy the idea that lower tax rates for the wealthy create new enterprises etc?

A) Lower marginal tax rates are beneficial by increasing incentives to work, save and invest – this is true across the income scale. The tax system could be designed to achieve a low marginal rate on high incomes while raising more money from the rich via higher wealth and inheritance taxes.

 

Q) Why do you think there was no mention of QE in the Budget, despite the fact Osborne was candid about his economy policy in the Pre-Budget report?

A) QE is, at least on paper, the responsibility of the Bank of England so the Chancellor observed the usual manners in not mentioning it yesterday. The Bank, of course, is behaving exactly as the Treasury would wish by effectively monetizing the deficit despite inflation remaining well above its remit target.

 

Read more from Simon Ward here.

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