The new budget has caused a lot of controversies, as its way to face the recession is by augmenting the national debt. In this essay I will not talk about the less controversial aspects of the like i.e. the tax assistance or the relief to those facing repossession problems, only summarise them in the first paragraphs of my essay. Than I will move more controversial issues of the increasing of the income tax for the richer part of society and the lowering of the VAT.
As mentioned above, PBR is increasing the expenditure of the government. Starting with National Insurance – its contribution will rise on average by 0.5% with both, employers and employees paying more. There is a package of measures for those facing the repossession – mostly investment in free debt services. Another growth in the expenditure of the government is caused by the child benefits, paid by twenty five million of people will rise by more than 5% a week for the first child and Ł13 week for younger children. The state pensions will rise to Ł95.25 from April. The good news for small business is the temporary increase in empty property relief. The PBR includes scheme worth 1bln to lend small business.
The raising of income tax for the richest was to balance the economy, those who earn more than Ł40 000 can expect higher taxation, those who have income bigger than 150 000 will pay 45% income tax – five percent more than hitherto. This is supposed to give a Ł20bln fiscal stimulus. The Labour MP’s call it more ‘fair’ redistribution of the goods.
The part of the PBR which aroused the biggest controversies was the cut in the VAT from 17.5% to 15%. This policy is supposed to increase the consumption. What might make this it more successful is the fact that the Christmas which is the period of highest consumption. The prices might fall also due to the fact that the price of the fuel will decreased by it. The opponents of this idea argue, that most of the additional expenditure will flow abroad. Other sceptics say that the decrease in the VAT will not change to much as consumers are going to save money anyway.
What is worth emphasising the fact that the new budget is in many ways favouring the lower strata of the society. The attempt to encourage people to spend is going to be financed by the rich. What is more important, is that the budget will increase the national debt to 78bln pounds this year 2009 and to 118bln pounds next year. It expects the growth of GDP fall next year between -0.75% to -1.25% , but in 2010 the government expects growth to rise between 1.5 and 2 %.
In my opinion this is a risky policy , (I hope I am wrong) will not work. I agree with those who say that the budget is more political tool which uses to win the next election. Even if the plan to encourage spending will work, most of them will be shipped overseas. The plan of expanding the credit in my opinion will scare off the investors. The project of having one of the biggest national debts in the history might influence negatively the public opinion which will be rather unenthusiastic to spend more money because of it. The economic forecasts seem to be unreliable, as many independent specialist argue that the growth of GDP might not rise that much, if not at all in 2010.
