Coalition budget of compromises

Yesterday’s Emergency Budget, the first for George Osborne and the Tory-Lib Dem coalition, contained few surprises. Heavily trailed in the media over the weekend, the public were primed to expect a rise in taxation and a reduction in Government spending. On both counts the Chancellor did not disappoint.

Before the General Election Osborne declared that spending cuts should account for 80% of deficit reduction, with tax increases making up the remaining 20%. In fact today’s budget revealed a 77/23 split – a tangible sign of LibDem influence in the Treasury.

For the retail property industry the impact of the budget will be direct and indirect. The direct column is led by a 4% reduction in corporation tax – 1% every year for 4 years – and a massive reduction in budgets for Whitehall departments involved in regeneration. In particular DCLG’s budget will be reduced by 25% over 4 years, reducing that department’s role as a regeneration partner right down to the scheme level. Local authorities too will see their budgets contract significantly, with a consequent impact on their ability to invest in regeneration schemes. However there was positive news in the Chancellor’s announcement that transport infrastructure projects in Leeds, Sheffield and Birmingham will go ahead, which follows on from the Transport Secretary’s guarantee last week to deliver London’s Crossrail project in full.

The Chancellor’s speech also announced the future publication of a White Paper into regional economic differences, designed to address the economy’s reliance on London. This rebalancing effort is heralded with the introduction of a Regional Growth Fund to help fund regional capital projects over two years.

Tomorrow’s newspapers will place the increase in VAT front and centre in their budget coverage. The consumption tax will rise to 20% from January 2011, with many retailers watching nervously for signs of a downturn in consumer confidence. On the upside, many retailers can expect a bumper Christmas as families look to buy big ticket items before the VAT rise kicks in.

Kevin McKeever, Account Director

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