Overall, the Budget showed that the government is taking tentative steps to promote the balanced recovery needed by the economy.
In recovery mode
The UK economic recovery is now “well established”, according to the Office for Budget Responsibility (OBR). Recent UK growth has been strong compared to its peer economies, experiencing the fastest growth of the G7 economies in the fourth quarter 2013. GDP growth has been revised up to 2.7% for 2014, and 2.3% in 2014.
While green shoots are appearing on the horizon, the net deficit still remains high. The OBR said it expects the underlying deficit to be £24bn lower over the forecast period than predicted at the autumn statement 2013.
“Five years ago, the deficit was expected to reach half the level it is at now, and although the UK is in economic recovery mode, there is little room to deviate from fiscal tightening,” Nancy Curtin, chief investment officer of Close Brothers Asset Management, said.
Growth may be better, but with some hard work still to do on deficit and debt reduction.
“Osborne – from a gilts-market perspective – was probably right at this stage to limit his ‘giveaways’ and keep his powder dry for future years,” Neil Williams, group chief economist at Hermes Fund Managers, said.
Crackdown on VCT abuse
Venture Capital Trusts (VCTs) could see regulatory changes in the year ahead with the government concerned about potential misuse of state subsidies in “low-risk” investments.
“The government is concerned about the growing use of contrived structures to allow investment in low-risk activities that benefit from income guarantees via government subsidies and will therefore explore a more general change to exclude investment into these activities, consulting with stakeholders”, the Budget document said.
Osborne reiterated this in his speech, saying: “We will take action to curb potential misuse of the EIS and VCT schemes”.
”The government’s commitment to VCTs was shown by the confirmation that investors will be able to buy VCT shares via platforms. This will make it more straightforward for advisers and investors to purchase VCT shares in the same way that they buy other investment products," Ian Sayers, director general of the Association of Investment Companies, said.
“As expected new rules are to be introduced on enhanced share buy-backs and dividend payments arising from a reduction in share capital. Other changes prevent VCTs and other enterprise schemes from investing in companies which receive certain renewables subsidies."
ISA merger
One of the more significant announcements in the Budget revealed that stocks and cash ISAs will merge to create a new single ISA.
“We will make them more flexible by allowing savers to transfer all of the ISAs they already have from stocks and shares into cash, or the other way around. And we are going to make the New ISA more generous by increasing the annual limit to £15,000,” Osborne said in his speech.
Scotland
Plummeting North Sea revenues are a reminder of how an independent Scottish economy would be “precarious”, Osborne said.
In the budget, the OBR has revised down oil and gas revenues by £8bn over the next 5 years reflecting fluctuating and volatile North Sea tax revenues.
“Britain is better together,” Osborne concluded in his speech.
"Game on"
Looking to May 2015 and the general election, where does this leave us?
"The battle lines are clear – capped welfare spending, a continued focus on balancing the books and a growing sharing of the economic growth dividend will be contrasted with the soak the rich moves from Labour and more state interference in the economy, capping utility pricing for example … It’s game on!" according to Neil Dwane, european equity CIO at Allianz Global Investors.
