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| | Hi Friend,
Budget Special ...
It was budget day on Wednesday. No rabbit from the hat, no bounce for the dead cat. The Deep State was silent. The Chancellor of the Exchequer presented his Spring budget. It will be his last before the election. An election which could take place as early as May.
It's going to be great. We will be the creative capital of Europe, the next Hollywood, the next Silicon Valley. Not for the moment, the low tax, "Singapore of Europe" but we are still working on that.
National Insurance will be abolished (but not anytime soon). We begin with a with an additional 2% cut, to an 8% rate, beginning in April this year.
Full expensing of leased assets to be included for business tax relief. Capital gains tax for sales of second homes to be cut from 28% to 24%.
We are on track to become the world's next Silicon Valley. We have become Europe's largest film and TV production centre. Studio space in the UK has doubled in the last three years. At the current rate of expansion, we will be second only to Hollywood by the end of 2025.
We are providing more military support to Ukraine than nearly any other country. Our spending will rise to 2.5% of GDP as soon as economic conditions allow, or the Russians invade the Baltic states.
Plans for leveling up continue, more money for Cambridge and Canary Wharf. AstraZeneca to invest £60m to expand their footprint on the Cambridge Biomedical Campus. Canary Wharf to be transformed into a new hub for life science companies.
Problems in the hospitality sector identified. The freeze on alcohol duty will be extended to April 2025. The 75% business rates discount for pubs will continue.
Fuel duty will be frozen for the thirteenth year in succession. The freeze means fuel duty will remain at 57.95p per litre, as it has since March 2011. The 'temporary' 5p cut on the fuel tax, first introduced in March 2022 by Chancellor Rishi Sunak, will remain in place until March 2025.
The investment needed to modernise NHS systems so "they are as good as the best in the world" will be fully funded by central government. It will cost £3.4 billion and unlock £35 billion of savings, a ten fold payback assuming development costs can be kept under control and we don't use Huawei, Fujitsu or TikTok.
"We will slash the 13 million hours lost by doctors and nurses every year to outdated IT systems. We will use AI to cut down and potentially cut in half, form filling by doctors. We will digitise operating theatre processes allowing the same number of consultants to do an extra 200,000 operations a year." We will also get rid of fax machines and use WhatsApp.
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| | OBR forecasts show we have made good progress ...
OBR forecasts show we have made good progress on the Prime Minister's three economic priorities. Inflation has halved ... Debt is falling ... Growth is 1.5 percentage points higher than predicted ...
The OBR expects the economy to grow by 0.8% this year and 1.9% next year. After that growth rises to 2%, 1.8%, and 1.7% in 2028. Inflation will fall to 2%.
Underlying debt, will be 91.7% of GDP in 2024-25, then 92.8%, 93.2%, 93.2% before falling to 92.9% in 2028-29 with final year headroom of £8.9bn. (That's enough for another NI cut!)
Business confidence is returning ...
Business confidence is returning. Investment is surging. In the short period since the Autumn Statement, Nissan have announced they will build two new electric car models in the UK.
Microsoft and Google have announced data centres worth over £3 billion. Thanks to the Business Secretary, the Global Investment Summit unlocked £30 billion of investment.
There will be more money for police technology ...
There will be more money for police technology. We will spend £230m rolling out time saving technology which speeds up police response times. Victims will be able to report crimes by video call (assuming their phones haven't been nicked).
Drones will be used as first responders, under a new "Use Your Phone or Talk To A Drone" campaign. This way, all incidents will be attended with a "Fly By" at least. The crime response stats will be improved at the "flick of a joystick".
Non Dom status will be abolished ...
Non Dom status will be abolished raising £2.7 billion a year but there's a catch ...
From April 2025, new arrivals to the UK will not be required to pay any tax on foreign income for their first four years of UK residency. This is a more generous regime than at present and one of the most attractive offers in Europe. But after four years, those who continue to live in the UK will pay the same tax as other UK residents.
In a two-year period, individuals will be encouraged to bring wealth, earned overseas, to the UK where it can be spent, invested and taxed! This measure will attract £15 billion of foreign income and generate more than £1 billion in extra tax, it is said. Yes they will be arriving by the boat load, who could resist that offer.
Overall, abolishing non-dom status will raise £2.7 billion a year by the end of the forecast period. That's assuming "they stay to pay". There aren't many, anyway, approximately 37,000, of which 90% choose to leave with seven years as it is.
If they come and leave within four years, they will be better off under the new regime. It's a four year window. Time to work things out and time to buy a second home in Monaco.
Village Hall Boost ...
More good news, there will be £5m to renovate hundreds of local village halls across England so they can remain at the heart of their communities, hosting food banks and social services as local authority budgets are slashed.
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| | The Deep State Was Silent ...
Liz Truss complained, when ditched as Prime Minster, she had been "downed by the deep state". The Bank of England, the Office for Budget Responsibility, the International Monetary Fund, the Economist and the Financial Times were all, she claimed, part of the Deep State. A sinister left-wing cabal promoting something called "wokeonomics" and an anti growth agenda.
"We have to understand how deep the vested interests of the establishment are, how hard they will fight and how unfairly they will fight in order to get their way". "That is what I learnt from my time as a government minister and my time in No 10." [Obviously a quick learner.]
This time, this budget, the deep state was silent. Or was it? According to Tom Peck in the Times on Friday, maybe the Institute of Fiscal Studies should be added to the Deep State Hit List.
"The IFS post-budget briefing is where budgets traditionally go to die".
Director, Paul Johnson, the Wonk King, stands up in front of the assembled wonks and nobly fulfills his role of national, post-budget, extractor fan. The smoke is sucked away. The mirrors smashed." Reality revealed.
"Nothing that Jeremy Hunt did yesterday, changed anything," Paul Johnson said on Thursday "We are still heading for a parliament in which living standards will be worse at the start than at the end. That's pretty much unprecedented."
Tax revenues are seen to rise to the highest level, as a share GDP, since 1948. Pensioners will be punished by the latest budget moves. Risks to borrowing from certain tax cuts now, are to be paid for by back loaded uncertain increases in the future. Spending plans are largely unspecified.
Richard Hughes Director at the OBR has called Government spending plans a " work of fiction". "Some people call [the projections] a work of fiction, but that is probably being generous. At least someone has bothered to write a work of fiction, the government hasn't even bothered to write down what the departmental spending plans are", he said.
The IFS claims, there would need to be at least £20 billion of spending cuts, for departments other than the ring fenced departments of, health, defence, education and child care. Where would they come from? This, will be a "staggeringly hard choice".
"How do you make cuts, given NHS waiting lists, local authorities at or near bankruptcy, backlogs in the justice system, long-term cuts to university funding and struggles in social care and prison systems".
The £20 billion plus savings from productivity improvements are ambitious. The inclusion of £5 billion revenue annually for energy hikes in the future, flies in the face of history. How do you make cuts? The answer is, you don't or can't.
The staggeringly hard choice will almost certainly be somebody else's problem, given the next spending review will take place rather conveniently, after the next election.
Some agree with Professor Philip Cowley and have signed up to his Campaign to Scrap the Budget. "Such occasions of parliamentary theatre, give governments an incentive to put short-term gimmicks above serious policy development". Short term gimmicks? Never!
Yep, tough choices to be made but after the next election. It could be sooner than you think ...
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| | That's all for now. Have a great week ahead ...
John
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| To understand the markets, you have to understand the economics ...
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© 2024 John Ashcroft, Economics, Strategy and Financial Markets, experience worth sharing.
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