UK set for slow recovery
The UK is in for a "slow and sluggish" economic recovery that will undershoot government growth predictions, according to economists.
The Confederation of British Industry (CBI) predicts fragile growth of 1% in 2010, starting at 0.3% and 0.4% in the first two quarters of the year before rising to 0.5% in the second half.
The end of stimulus measures - including the VAT reduction and the car scrappage scheme - will weigh on the pace of recovery, it says. Growth is then forecast to rise to 2.5% in 2011.
Meanwhile, economists at the Ernst & Young ITEM Club have warned that government growth forecasts at 1.25% and 3.5% next year are too bullish with consumer spending and business investment still remaining very weak.
Richard Lambert, CBI director-general, says: "The economic outlook is improving, but the lack of a clear driver for growth will make for a bumpy ride in the months ahead.
"To convince international investors that the spiralling budget deficit will not derail the economy, the government must set out a credible plan to balance the books by 2015/16, two years earlier than currently planned."
The Ernst & Young ITEM Club said Darling needs to find another £10 billion through a "credible detailed and more aggressive plan".
However, the record budget deficit is likely to be less than the £178 billion predicted in the pre-Budget after better-than-expected public finance figures amid falling unemployment and a boost from the bankers’ bonus supertax.
Government borrowing is now expected to undershoot forecasts by between £5 billion and 10 billion.
Over the weekend, the chancellor Alistair Darling reiterated comments that there will be no giveaways in Wednesday’s "sensible and workmanlike" Budget.
He appeared to rule out the prospect of a VAT rise to 20%, claiming that the planned increases in national insurance contributions are a "better way" of reducing the deficit.
He also ruled out any further rises to the top rate of tax.
However, one plan to emerge from the Treasury is the launch of a £2 billion state-backed "green investment bank" which will be half funded by taxpayers and half funded by the private sector for environmental projects.
These will include high-speed rail lines, offshore wind farms and nuclear power stations.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
The practice of locating your financial affairs (banking, savings, investments) in a country other than the one you’re a citizen of, usually a low-tax jurisdiction. The appeal of offshore is it offers the potential for tax efficiency, the convenience of easy international access and a safe haven for your money. However, offshore is governed by complex, ever-changing rules (such as 2005’s European Union Savings Directive) and, as such, is the exclusive province of the wealthy and high-net-worth individuals.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
Confederation of British Industry
The CBI promotes the interests of its members, some 200,000 British businesses, a figure that includes 80% of FTSE 100 companies and around 50% of FTSE 350 companies. Formed in 1965, it’s the lobbying organisation for UK business on national and international issues and seeks to influence the UK government to help businesses compete effectively.