At the same time as the Chancellor of the Exchequer was speaking to Parliament, the Office for Budget Responsibility published its forecast for UK GDP to fall by 0.1% this year. The OBR added that it expects the UK’s economy to grow by 1.2% next year and then rise gradually to 2.8% in 2017.
According to HM Treasury: “Because of the ongoing impact of the financial crisis, the euro area crisis and the effect of inflation on incomes and business costs, the OBR is predicting a more subdued and uneven recovery than expected with growth weaker and inflation higher than forecast.”
To promote growth, Osborne announced a number of plans including:
* an immediate £5.5bn earmarked for infrastructure projects including long-term private investment in roads, science investment, free schools and academies investment, with a further £40bn to come;
* a cut in corporation tax from April 2014 to 21%, from 22%, to encourage companies to either move to or remain headquartered in the UK. This compares with rates of 40% in the US, 33% in France and Germany’s 29%;
* from 1 January next year, small and medium-sized businesses are to benefit from an increased Additional Investment Allowance for two years, up from £25,000 to £250,000, for qualifying investment in plant and machinery;
* they will also benefit from a Business Bank with £1bn for small businesses to access finance, while UK Export Finance will provide a further £1.5bn in loans to fund small firms’ exports.
These, and other plans, are all designed to meet Osborne’s now revised target of getting debt as a proportion of GDP falling by 2015/16, just in time for the next General Election.