It will be no surprise when Chancellor Gordon Brown downgrades his growth forecasts in the Budget, announced today (Wednesday). His projections are likely to be blamed on the sluggish global economy and war with Iraq.
The Budget comes just days after the one per cent rise in National Insurance contributions, announced in last year’s Budget, came into force. Economists say that National Insurance could again be a target for raising extra cash.
Confederation of British Industry head of economic analysis Doug Godden says: “The fact that Labour pledged not to raise Income Tax in the last election does not mean anything if National Insurance is under attack again.”
He adds, however, that Brown is unlikely to make any changes to Value Added Tax, but warns that the Government may have to raise taxes in future years, if spending plans are to be met.
In his pre-Budget report, Brown raised borrowing projections to &£24bn for 2003 to 2004 and &£19bn for 2004 to 2005. Analysts say that the spending deficit is set to increase further despite the hike in National Insurance contributions.
With the slowdown in consumer spending, Safeway director of communications Kevin Hawkins hopes that the Chancellor will introduce measures that will in some way boost consumer confidence.
“Retailers flourish on consumer optimism and the last thing they want consumers to do is to pull in their horns and cut spending,” he says. But he adds that the Chancellor’s hands are tied, to some degree, in that he does not have control over interest rates, which, if lowered, could boost consumer spending or the stock market.
According to the CBI’s monthly Distributive Trades survey, retailers have suffered the first significant year-on-year fall in sales volumes for four years.
CBI chief economic adviser Ian McCafferty says: “Sales growth has stalled in almost every retail sector.
“These results confirm our fears that consumer confidence has been affected by uncertainties surrounding the war in Iraq, the impending tax rises and worries about the housing market.
“Retailers have already done their best to prop up consumer confidence by cutting prices and heavy discounting. They will be hoping that the Budget does nothing further to keep people away from the shops.”
Meanwhile, the travel industry is hoping for some form of acknowledgement of the crisis it is facing due to the war in Iraq and the deadly SARS virus imported from the Far East.
Keith Betton, director of corporate affairs at the Association of British Travel Agents, says that he hopes for deferred tax payments for the industry.
Another lobby that has been putting its case to the Treasury is the brewing industry, which is urging the Chancellor to introduce a freeze, or some small reduction, on the duty on beer as part of a strategy to eliminate smuggling.