OECD Hails 'Courageous' UK Budget

by Robin Pilgrim, LawAndTax-News.com, London

25 June 2010

The UK emergency budget has, on the whole, been well received by commentators from a macro-economic standpoint.

There were net tax rises building up to around GBP8bn per year announced in the Emergency Budget, with by far the largest increase being the rise in VAT to 20% from 4 January 2011, but the main burden of the fiscal adjustment will be through a severe squeeze on public spending.

OECD Secretary-General Angel Gurría hailed the budget as "a courageous move” by the British government. “It provides the necessary degree of fiscal consolidation over the coming years to restore public finances to a sustainable path, while still supporting the recovery. The plan for a gradual reduction in the deficit over the next five years is concrete and far-reaching. It is appropriate that the bulk of the adjustments come from public expenditure restraint, and that the tax measures focus mostly on consumption," he commented.

John Hawksworth, head of macroeconomics, PricewaterhouseCoopers LLP said:

“The Chancellor has delivered a tough emergency budget...(with what) appears to be the right scale of fiscal tightening needed to reassure bond markets and credit rating agencies that the government is serious about deficit reduction.”

“We agree with the Office for Budget Responsibility that the most likely scenario is for a gradual recovery in the economy over the next few years. The additional fiscal tightening in the emergency budget is likely to reduce growth and employment somewhat in the short term, but in the medium term it should contribute to interest rates remaining lower and so to a more balanced and sustainable economic recovery.”

Stephen Gifford, Chief Economist at Grant Thornton commented:

"It will be around public expenditure where the challenges reside. Spending reductions of GBP32bn per annum by 2013/14 are much worse than the drastic cuts of the early 1980s. Given commitments around health spending, unprotected departments are likely to have a mountain to climb over the course of this Parliament."

"It really was a case of pain today for profit tomorrow. The economy is still in a precarious position but this robust deficit reduction plan should keep interest rates low and help maintain the economic recovery."

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