It’s that time of year again; when the days start to get longer, the daffodils are out and the Chancellor whips the country’s finances into shape with the annual March budget.
Come 20 March, the nation gets to hear the plans which Mr Osborne has set for the next year for income tax, benefits, fuel and stamp duty, as well as a general overview of the economic policy. After December’s gloomy autumn forecast, which turned out to be more of a mini budget above anything else, the Chancellor has already confessed that he won’t be able to reach his target of reducing public debt as a proportion of economic output by 2015-16.
Britain has already lost its top AAA credit rating, which back in December Mr Osborne said “wouldn’t be a good thing”, as a sign that the country’s financial health is getting worse. Ed Balls MP, Labour’s Shadow Chancellor, called the credit rating downgrade by Moody’s a ‘humiliating blow’ for the Prime Minister as the economic recovery looks further away than ever before.
“This credit rating downgrade is a humiliating blow to a Prime Minister and Chancellor who said keeping our AAA rating was the test of their economic and political credibility,” he said.
He added: “It would be a big mistake to get carried away with what Moody’s or any other credit rating agency says. [The] verdict does not change the fact that the credit rating agencies have made major misjudgements over recent years, not least in giving top ratings to US sub-prime mortgages before the global financial crash.”
Whilst the banks battle it out to save their reputation, what will the March budget mean for the rest of us?
There’s no doubt about it – savers have not had very good luck under the coalition with the base rate remaining at an all-time low for four years. The painfully small 0.5% interest rate which is in line with inflation means those saving have seen minimal, if any, returns. The good news is that the government recognises this and there have been calls and speculation that the ISA limit could double. The tax-free Individual Savings Account (ISA) has a top limit of £11,280, however you can only stash half of this amount into a cash ISA. Nationwide argue that if the ISA allowance was higher, it would encourage more people to save, helping home buyers accrue large sums towards a deposit.
The high street bank claims that just under half of people who are eligible for an ISA account actually have one with a staggering £390 billion currently held in cash and stocks and shares ISAs across the country.
Richard Marriott, head of savings at Nationwide, claims a cash ISA rise would send out the right message to all of Britain’s savers that it is worth saving, no matter how much or how little.
He added: “With many first-time buyers struggling to raise a deposit and with pensioners relying more on their savings income, we believe this is the right time for the Government to act on ISAs.”
The latest PMI survey in Manufacturing found a further decline in the manufacturing activity in February which skates around the possibility of bringing the country into a dreaded triple dip. The bouncy economy has taken a turn for the worst again as export figures are down as well. February marks the 14th consecutive month where new export orders have fallen.
Despite this and the credit rating downgrade, the Bank of England and the Office for Budget Responsibility believe the slow pace of growth since 2010 owes more to the eurozone and imported inflation than it does to Mr Osborne’s tax rises and cuts in public investment. Spending cuts
The chancellor claims that spending cuts are a must if the government is to retain credibility.
“We have a credible and flexible debt reduction plan,” said Mr Osborne at the World Economic Forum summit in January.
“That credibility is very hard won and easily lost.”
This came as the International Monetary Fund’s chief economist, Olivier Blanchard, called for the UK to slow down its austerity programme. Ways to stimulate growth without too many deep tax cuts will be high on the agenda this year; however details of the budget have yet to be announced, in comparison to last year when they were leaked weeks before the big B-day. Most of the cabinet are being kept away from major discussions that do not directly involve their departments and there is an agreement between David Cameron, George Osborne, Nick Clegg and Danny Alexander that they need to “keep this budget very tight.”