Who said what to whom?
The Chancellor described his Budget as being for “makers, doers and savers”. For makers and doers specifically, there is a big increase in the allowance for capital investment, up to £500,000 which will stay in place for longer than originally planned.
What does it mean?
If you’re a manufacturer, for example, looking to buy equipment for your factory, you now have an added incentive to do it quickly. Claiming the tax allowance makes the investment cheaper. And the allowance ends in December 2015, so firms might plan and make that investment sooner than they otherwise would. Business groups have welcomed the Chancellor’s announcement.
What could go wrong?
Business investment remains relatively low, having decreased last year. Will this incentive help it to rise? Intriguingly, the Office for Budget Responsibility (OBR) doesn’t think so. In their latest commentary on economic and fiscal prospects, published at the same time as the Budget and written with forewarning of what the Chancellor was planning, they suggest the conditions around the allowance mean that it will lead to a total of just under £1bn of business investment being brought forward from 2016 and 2017 into 2014 and 2015. In other words, the measure doesn’t lead to any additional investment, it just brings it forward a bit. And the amount involved is tiny. Indeed, the OBR says it has “a negligible effect on real GDP growth.”
When will we know?
We can watch how business investment performs over this year. But the wider interest is to spot the other ways in which the OBR thinks the government’s Budget measures don’t make much of a difference. The Chancellor announced more export finance in his speech. The OBR barely comments on what he said. Their outlook for exports in general remains pretty downbeat. The Chancellor also produced a surprise package for savers. It shouldn’t have been a surprise to the OBR, as they get pre-warning of Budget measures. But they are still forecasting that the UK’s savings ratio collapses from 7.2% in 2012 to 3.2% in 2018.
Commitment rating: 2
There’s no doubt that the Budget measures will come into force. But will they make any difference to economic performance? The Chancellor’s own budget watchdog doesn’t seem to think so.
The Chancellor described his Budget as being for “makers, doers and savers”. For makers and doers specifically, there is a big increase in the allowance for capital investment, up to £500,000 which will stay in place for longer than originally planned.
What does it mean?
If you’re a manufacturer, for example, looking to buy equipment for your factory, you now have an added incentive to do it quickly. Claiming the tax allowance makes the investment cheaper. And the allowance ends in December 2015, so firms might plan and make that investment sooner than they otherwise would. Business groups have welcomed the Chancellor’s announcement.
What could go wrong?
Business investment remains relatively low, having decreased last year. Will this incentive help it to rise? Intriguingly, the Office for Budget Responsibility (OBR) doesn’t think so. In their latest commentary on economic and fiscal prospects, published at the same time as the Budget and written with forewarning of what the Chancellor was planning, they suggest the conditions around the allowance mean that it will lead to a total of just under £1bn of business investment being brought forward from 2016 and 2017 into 2014 and 2015. In other words, the measure doesn’t lead to any additional investment, it just brings it forward a bit. And the amount involved is tiny. Indeed, the OBR says it has “a negligible effect on real GDP growth.”
When will we know?
We can watch how business investment performs over this year. But the wider interest is to spot the other ways in which the OBR thinks the government’s Budget measures don’t make much of a difference. The Chancellor announced more export finance in his speech. The OBR barely comments on what he said. Their outlook for exports in general remains pretty downbeat. The Chancellor also produced a surprise package for savers. It shouldn’t have been a surprise to the OBR, as they get pre-warning of Budget measures. But they are still forecasting that the UK’s savings ratio collapses from 7.2% in 2012 to 3.2% in 2018.
Commitment rating: 2
There’s no doubt that the Budget measures will come into force. But will they make any difference to economic performance? The Chancellor’s own budget watchdog doesn’t seem to think so.
