Global economic turbulence was the explanation UK Chancellor of the Exchequer George Osborne offered yesterday for failing to meet some of his key fiscal targets as he cut growth forecasts for the British economy for each of the next five years and was much more gloomy about future economic prospects than had been anticipated. For 2016, estimated growth has been revised to two per cent of gross domestic product from 2.4 per cent.
Mr Osborne, in delivering his eighth budget, was bound by a legal commitment to achieve a budget surplus by 2020.
To reach that goal, however, will require further austerity measures, more spending cuts and fewer tax reductions. This sudden economic reversal comes at an inopportune time: for Mr Osborne himself, for his Conservative party and for the UK government's efforts to win the Brexit referendum in June.
The chancellor has already suffered a series of setbacks which have weakened his authority and damaged his chances of succeeding David Cameron as Tory party leader and prime minister.
The latter is set to retire before the next election. Last year Mr Osborne broke one of the cardinal fiscal rules he had set himself by reversing a decision to cut £4.4 billion (€5.64 billion) in tax credits. And yesterday he broke a second rule, conceding that annual debt reduction – as a share of GDP – was no longer possible.
A less buoyant UK economy and a weakening currency will make the British market a more challenging one for Irish exporters. In addition, the budget decision to cut corporation tax to 17 per cent by 2020 will mean greater competition for this State in attracting foreign direct investment. From 2018, Northern Ireland’s corporate tax rate will drop to 12.5 per cent.
One budget measure that will be closely watched here is the proposed new “sugar levy” on the soft-drinks industry. It is estimated to raise £520 million and represents a major initiative in tackling obesity – particularly in children – with the proceeds used to double the funding for sport in Britain’s primary schools.