The 2014 Budget: Presenting The Pre-Election Narrative
BMI View: The UK 2014 budget was never going to be a game changer in economic terms given the strict fiscal course set out by the ruling coalition upon forming government in 2010. However, make no mistake, this is a big budget in political terms. The ruling Conservative party has clearly set out its campaign strategy ahead of the 2015 general election, which we believe will start to feed through to opinion polls over the course of the next year. Given the minimal difference in support between the main ruling and opposition parties, the race in 2015 will be extremely close.
Having set out a stringent course for reining in the public finances upon coming to office in 2010, UK Chancellor of the Exchequer George Osborne has had little room to manoeuvre in subsequent budgets beyond some tinkering around the edges. The big ticket expenditure items such as the NHS, defence, education and unemployment benefits have already been addressed in previous fiscal years, as have the main revenue generators such as corporation and income tax. In addition to the self-imposed restraints from such a dogmatic first budget, the scope to materially change the fiscal course ahead of the next election is limited by the Office for Budget Responsibility (OBR) - the independent budgetary watchdog charged with producing official economic and fiscal forecasts for the Treasury. While the OBR forecasts show an improvement in both the economic and fiscal outlook, it is not sufficient to allow much in the way of discretionary tax cuts or a spending splurge to buoy popular support.
With this in mind, expectations were low ahead of the presentation of the 2014 budget to parliament on March 19. There were some minor concessions for industry aimed at supporting investment and exports, a modest increase in the personal tax free allowance and a major overhaul in pensions. Even the latter, which marks the biggest shakeup in pensions since the state pension was introduced, will have little impact on the fiscal accounts over the medium term, although clearly has a big impact for pensioners and those saving for a pension over the long term. Although the economic implications are fairly limited, as expected, the politics of the budget packed a punch. Indeed, this is probably the most political of Osborne's five budgets as it sets out the narrative which will form the basis of the Conservative's election campaign ahead of the 2015 vote.
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