Effect of the Budget Announcement on the Economy - Essay Example

Introduction The budget read on 2008 had strong impacts on the UK economy in a variety of sectors. Employment, commodity prices, consumer demand, EU currency and other macroeconomic issues are a few of the examples. Environmental concerns and many other segments have been affected by the vice chancellor's speech. The essay will attempt to analyse some of the changes that the announcements made in these various concerns. (Elmeskov, 2008) Effect of the budget announcement on the economy Supply and demand curves Source; http://www.williampolley.com/blog/images/2008/inc_sub21.html The latter graph summarises some of the indifferences in the budget and some changes that occurred as a result of the announcement. Supply and demand of commodities has changed depending on the nature of the industry. For instance the supply of alcoholics and cigarettes has gone down thus affecting the supply for the commodity too. This has occurred as a result of the announcement made on budget day; alcohol was increased by six percent over inflation. Spirits, wine and beer were all affected by this price elevation. (British Retail Consortium, 2008) The speech has also affected the rate of availability of fuel. The chancellor announced a fuel allowance for mature citizens. However, such an allowance had to be compensated by other users of the resource. This announcement actually contributed to the rising fuel costs. Besides that, the chancellor also announced that polluting vehicles would have to pay up higher road taxes than their 'green' counterparts. This would have been a way to offset the allowance given to senior citizens. However, the chancellor asserted that the measures would be implemented in the month of October. This is already starting to cause tax contributors and may continue to do so in the year 2009. Perhaps the major reason for this delay was to appease economists and consumers who were likely to demonstrate over rising fuel costs on the streets. However, environmentalists are not very happy about the chancellor's moves. They feel as though they have been short-changed by his delays. The money market did into improve in any way. Before March, the UK was the country with the highest inflation rate in G7. As if that is not enough, the country also has an extremely high budget deficit. Many analysts assert that the chancellor expressed optimism for the future of the country yet the rate of borrowing within the UK did not give him reasons to be optimistic. This is still the case presently. The latter results could have been heightened by the fact that the budget was extremely tight. Almost all the finances were allocated somewhere. The overall result was that there were no savings or available finances to dispose off. (Meader, 2008) The overall predictions about the economy within the budget speech also came true. The UK is operating within a volatile global market where the economy outside UK is negative. The same has affected the UK too. This is also likely to continue into the next year. However, even that pessimism was still not up to per with the current reality. Chancellor Darling announced that the UK economy would increase by between one point eight and two point two percent. This level has still not been achieved today as borrowing levels have exceeded predictions made earlier. Overly, the budgetary effect seemed to have been offset. This is because the Chancellor was announcing the budget against the following issues; A global credit crisis Public finances that were tight A slow domestic economy The Chancellor was faced with the option of cutting down taxes thus promoting growth or he could have increased taxes and promoted public financing. Each measure would have totally different effects; the former would have caused a lot of discrepancy from financial market stakeholders as it would be detrimental to that sector. Additionally, the latter measure would have derailed the economic process. What the Chancellor decided to do was to reduce taxes in certain areas and increase them in other areas thus neutralising either measures. The issue of child poverty is currently being addressed and will continue to be addressed in the subsequent years. To offset those, costs, now fuel and alcohol costs have gone up. The overall effect of all this currently is a lower revenue base by the United Kingdom's government. (NIESR, 2008) Income growth is still low owing to the latter mentioned factors. Besides this, the country is still grappling with the depression of the housing market. This means that consumption rates in the housing sector are still below par. This is backed by the fact that the country and the international arena are still dealing with the credit crisis. Whether the budget has brought the UK closer to a single currency The budget announcement was conducted against a background of global fluctuations. The European has been grappling with increases in food prices and fluctuating fuel prices too. This rough background was not very conducive for the announcement of the budget speech given the fact that the Union was under high inflationary pressures. It is against this inflationary background that analysts assert that the economy has not been doing as well as it should have been doing. However, this does no undermine the fact that the Euro has been relatively stable. Some of the explanations made by various stakeholders indicate that the euro is quite resilient. This is because the euro zone is relatively favourable. Employment rates this year have been relatively stable and slightly positive. The amount of demand for Euro exports is high, consequently, respective EU countries are given lot of space to contrive. (Elekdag and Lall, 2008) The budget speech did not incorporate some of the macro-economic issues plaguing the EU. This means that the UK still has to deal with those issues on their own. As of June 2008, inflationary levels in EU had risen by a whopping three point seven percent. Such inflationary rates have exceeded any other levels anticipated. The latter inflationary levels have been felt mostly in the fuel and food sectors. It should be noted that these results do not encourage investments and growth within the EU. Therefore, the move towards a single currency has not yet shown any substantial improvements. Other points of interest The issue of taxation has been hotly discussed both before and after the budget speech. This came as a result of the Chancellor's announcement that the country has a stable tax regime. However, one cannot help but notice the finalisation and anti-avoidance steps laid out in the budget. Corporate taxes have generated particular interest here owing to the fact that the chancellor announced a reduction of the prior twenty eight percent taxation taxes. Besides that, the manner of taxing multinational corporations has come under severe criticism after the budget. These companies are forced to pay higher taxes in order to remain in business after the budget. This announcement has started discouraging some potential inventors who may be interested in establishing multinationals within the UK. A large percentage of them are now looking for other countries that have friendlier tax rates. This severely affects UK's image as one of the hubs for international corporations. (Camus, 2008) Employees and employers have also been affected by the March speech and they will continue to be affected. The speech did not lay much emphasis on labour issues, instead more focus was on other areas such as fuel. However, the budget has affected some entrepreneurs who run Enterprise management schemes. The Chancellor announced that they would get an increase on the amount of grants available to them, prior to the speech, they were entitled to a maximum of one hundred thousand. However, now they are entitled to a maximum of one hundred and twenty thousand. This has encouraged employers to consider this scheme as an option. Besides the latter, the chancellor also talked about domicile and residence changes. This caused greater problems for both employers and employers who are no longer entitled to remittances after calculating their tax levels. (KPMG, 2008) Conclusion The March 2008 budget speech was read against a background of low economic performance within the UK. Consequently, the Chancellor was in a dilemma of either increasing or decreasing taxes. His decisions have affected the money markets because credit pressures have not demonstrated positive results yet. Besides that supply and demand for specific commodities such as fuel and alcohol have also been affected. Reference British Retail Consortium (2008): Retail Sales Monitor; British Retail Consortium report, no 49, 29th June Camus, T. (2008): Publishing productivity measures; Labour & Economic Market Review, pp. 19-211, 7 Elekdag, T. and Lall, T. (2008): Global Growth Estimates Trimmed After Revisions; IMF Report Elmeskov, J. (2008): Economic Outlook Organisation for Economic Co-operation and Development Report; No. 82. December KPMG (2008): Labour Market Outlook; London, CIPD report, No. 25 Meader, R., (2008): Revisions to quarterly GDP growth and its components; Economic & Labour & Economic Review pp. 58-65, (11), 1 NIESR (2008): National Statistics, Consumer Price Indices; Labour & Economic Review Review. 1,(8), pp. 28-36 Read More