The chancellor, George Osborne, may have delivered as upbeat a budget speech as he could, but it had little impact on the financial markets. The pound, gilts and share prices were all largely unmoved by it.
The FTSE 100 index dropped just two points as analysts listened to the speech, confirmed by the view of one of them that “Budgets don't usually cause a market impact and this one was typically muted."
The general view from London is that the markets like what they are hearing from Osborne, and they like his commitment to rein in the UK's deficit. The one sector to suffer a little was banking. Shares in the major institutions dropped when the government announced it was increasing the levy on bank balance sheets to raise an additional £100 million.
By contrast, house builders saw improvements in their share price when the chancellor unveiled a £250m shared equity scheme to help first-time buyers. The scheme was welcomed by industry body, Homes for Scotland, which warned that any impact in Scotland would depend on how the next Scottish government chose to use any of the new money it received.
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According to Homes for Scotland chief executive Jonathan Fair, “First-time buyers are essential to a healthy and well-functioning housing market but they have been particularly hard hit by severe restrictions in mortgage lending. Still the main obstacle to recovery in our sector, it is imperative that this blockage is removed. We therefore wish to work closely with the next Scottish government to develop programmes leveraging private sector investment to increase the flow of finance.” Mr Fair suggested that a future Scottish administration should be looking at the introduction of a Mortgage Indemnity Guarantee, underwriting lending risk at limited public cost. “The social and economic benefits increased housing production could deliver are immense,” he explained. “If, for example, build levels could be increased by 10% per annum over the lifetime of the next parliament, we could have 46,000 new homes, 38,000 new jobs and over 1,000 new apprentices.” The general view of analysts was that, overall, the budget looked good for business. But at CBI Scotland, the chancellor’s speech was given a cautious welcome. In the view of assistant director, David Lonsdale, “Given the dire state of the public finances this budget was never likely to prove to be a bonanza for business. A tough programme of fiscal consolidation and public service reform is still needed in order to eliminate the public spending deficit, let alone address the expanding national debt and interest payments.” But Mr Lonsdale argued that the budget contained a number of helpful measures, particularly the larger than expected reduction in corporation tax. On top of that, the CBI has been calling for the introduction of enterprise zones, as a means of boosting the private sector economy in parts of the country that are struggling economically or have become overly reliant on the public sector. “The chancellor has listened,” said Mr Lonsdale, “and has announced there will be 21 new enterprise zones across the UK. With the levers available to an enterprise zone often a mixture of the reserved and devolved, such as reducing business rates or a more business friendly attitude towards planning, it will be crucial that the UK and devolved administrations work together to ensure Scotland does not miss out.” By contrast, the trade unions seemed completely unimpressed. Len McCluskey of Unite said that “George Osborne just re-arranged the furniture, when Britain needed a Plan B. Growth is shrinking, unemployment is on the rise, wages are falling or stagnant and this government is creating a lost generation of young people. No one should be fooled by this budget, it's a mirage from the architect of the most devastating cuts to jobs and services in generations.” As for Grahame Smith, STUC general secretary, he stressed that this “certainly wasn’t a budget for those who are looking for a job. The cuts in fuel duty and rise in income tax personal allowances are not nearly enough to offset the decline in real wages and falling household incomes brought about by the government’s own policies. “Once again,” he said, “the budget made it crystal-clear that we are not ‘all in this together’. Corporations will benefit from substantial tax cuts as unemployment continues to rise. Those who caused the crisis draw large bonuses as ordinary workers suffer growing economic insecurity and inequality. It is difficult to envisage a budget less suited to the problems the country faces at this time”. There is some concern about the impact on the North Sea oil sector. The chancellor said that the supplementary charge levied on profits from UK oil and gas production would increase at the end of the week from 20 per cent to 32 per cent, more than offseting a gradual in reduction in corporation tax over the next three years. Oil specialists say this won’t have much of an impact on the UK’s two largest oil companies, BP and Royal Dutch Shell PLC, because they have both reduced their commitments in the North Sea. However, they argue that it will almost certainly affect many of the small and medium-sized firms that now operate in the area. Small firms welcomed some of the chancellor’s promises, especially those on fuel duty and the amount of red tape. Andy Willox OBE, policy convenor of the Federation of Small Business in Scotland, claimed that “It is obvious that the chancellor has listened to the FSB regarding the cost of fuel, we look forward to seeing the price stabilise at the pump and, hopefully, drop. The key question is whether or not it will stabilise at a level sustainable for Scottish small businesses.” He was particularly pleased by the moratorium on small business regulation, pointing out that 62 per cent of his members had seen the cost of red tape increase in the last four years, with three in ten calling it one of the main barriers to business success. “While some regulation originates north of the border, many of our members will be pleased with the chancellor’s announcement. While this moratorium is in place, is this not an opportune moment to ensure that all future regulation doesn’t tie our members in knots?” There was however considerable disappointment in Scotland’s computer games industry which has gone through troubled times recently. Its trade body, TIGA, condemned the government’s failure to introduce games tax relief as a "dismal decision" which would leave the video games industry swimming against the tide internationally. Dr Richard Wilson, the organisation’s chief executive, described it as showing “a complete lack of imagination. Our key competitors have tax breaks for games production. The UK does not. Competitor countries including Canada are surging ahead while the UK is struggling: between 2008 and 2010 the Canadian games industry grew by 33 per cent while the UK sector declined by 9 per cent.” Dr Wilson pointed out that a games tax relief was supported by the Scottish government and had cross-party support at Westminster. He said the campaign for such a “crucial measure” would continue because it would “increase employment, investment and innovation in the UK video games sector. Over a five-year period, games tax relief would create or protect 9,519 direct and indirect jobs (including 3,366 jobs in the games industry), £431m investment in development expenditure and £394m in tax receipts to HM Treasury.”Donate to us: support independent, intelligent, in-depth Scottish journalism from just 3p a day
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