Emergency Budget Date Announced

The Treasury has confirmed that newly appointed Chancellor George Osborne will present his emergency Budget on Tuesday 22 June, less than six weeks after taking power.

The new Chancellor made the announcement in his first Treasury press conference, in which he also confirmed another Conservative manifesto commitment to create an Office for Budget Responsibility (OBR).

Moving quickly, Osborne said the OBR would be an independent entity like the Monetary Policy Committee that would be responsible for developing “a truly independent assessment of the state of the nation’s finances”. The OBR will be set up initially on a non-statutory basis and be headed by economist Sir Alan Budd. Along with Geoffrey Dicks and Graham Parker he will form a Budget Responsibility Committee and get to work on the forecasts immediately.

The OBR will be put on a statutory footing in next week’s Queen’s speech. For each subsequent Budget and Pre-Budget Report the OBR will confirm whether the government’s policy has a better than 50% chance of achieving its objectives.

Explaining his reasons for the move, Osborne said: “Over the last 13 years the public and the markets have completely lost confidence in government economic forecasts. The last government’s forecasts for growth in the economy, over the past ten years, have on average been out by £13bn. Their forecasts of the budget deficit three years ahead have on average been out by £40bn.”

Previous Chancellors rather than independent officials were responsible for the forecasts and fell victim to the temptation to “fiddle the figures “ by nudging up growth forecasts and reducing borrowing figures to get the numbers to add up, he argued. The government would still set overall fiscal goals and tax and spending policies, but to rebuild public trust , independent forecasts will become the norm, he added.

“I am the first Chancellor to remove the temptation to fiddle the figures by giving up control over the economic and fiscal forecast. I recognise that this will create a rod for my back down the line, and for the backs of future chancellors. That is the whole point. We need to fix the budget to fit the figures, not fix the figures to fit the budget.”

With the £160bn+ deficit uppermost in his mind, Osborne said Treasury assessments confirmed it would be feasible to put £6bn of reductions in place for this year without damaging frontline services. Departmental secretaries ahve been told to resubmit all their pilot schemes and spending plans approved since 1 January to the Treasury. Those that give good value for money and fit the government’s priorities will go ahead, but no more money will be wasted on those that do not.

The emergency Budget will set out the fiscal path and will contain measures to boost enterprise, create a fairer tax system, and demonstrate to the world that Britain is open for business, he added.

The actual content of the 2010 Budget Mark Two will provide plenty of scope for speculation and interpretation among accountants. Last week, Simon Sweetman put forward the following contenders:

• VAT will go up to 20% - it’s fast and would raise lots of money. At the Treasury press conference, prime minister David Cameron said it was “not something we plan to do” but added that taxpayers would have to “wait for the first Budget” to find out if it would happen.
• The main rate of CT will be cut (possibly with the abolition of the small companies’ rate and of the annual investment allowance to pay for it).
• Increase in the rate of CGT on non-business assets - possibly from the day of the Budget. Tax Editor Rebecca Benneyworth anticipates the change due to concerns about the current 32% differential between CGT and the new 50% upper band for income tax, which makes it tempting for high earners to shift their income into capital.
• Employees’ NIC will go up, but not employers’ NIC.
• The personal income tax allowance will increase in the general direction of £10,000.
• The increase in the IHT nil-rate band won’t happen.

The leftovers hanging around from Alistair Darling’s 23 March Budget include the dealing with agents – deliberate wrongdoing legislation. Consultation was extended on the draft clauses until 28 April. The new government has shown itself to be sympathetic to the profession’s concerns. But even with two former PwC employees on the Treasury team, there has been no word yet what view they have taken on this.

While the Tories have fulfilled their pre-election promise to create the OBR, there is no news yet about the planned Office of Tax Simplification (OTS) and its review of small company taxation and IR35. Osborne said he would provide a further update on his activities in a speech to the CBI on Wednesday, or perhaps the OTS might be a surprise he’s saving for the accounting community until 22 June.

As far as symbols go, Osborne has reverted to the more traditional choice of a Tuesday to present his statement, after Gordon Brown opted for Wednesdays early in his period as Chancellor.

From AccountingWeb

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