PSBR deals blow to Budget tax cut hopes
Friday 21 April 1995
A survey by the economic analysts IDEA found a third of City traders do not believe tax cuts of any size would win the election for the Conservatives. Almost all thought cuts worth £5bn - equivalent to just over 2p off the basic rate of income tax - would trigger a base rate increase.
Chris Furness, senior analyst at IDEA, said: "The Government's natural constituency in the City does not think the electorate can be bought."
Electoral considerations aside, economists do not believe a big reduction in the tax burden would be wise. It would re-heat the economy when most economists reckon slower growth is needed to prevent inflation rising.
Keith Skeoch, chief economist at James Capel, said: "There is no scope for tax cuts at all. The economy does not need a shot in the arm." If the Chancellor wanted to use lower taxes to boost consumer spending, higher interest rates would be needed to dampen the resulting inflationary pressure.
Reductions in tax would also threaten to derail the Government's progress in bringing the public sector borrowing requirement below the level of 3 per cent of gross domestic product demanded by both common sense and the Maastricht treaty. Helen Macfarlane at Hoare Govett said: "It would be exactly the wrong time to cut taxes after the struggle to get fiscal policy on the right track."
The PSBR for the 1994/95 fiscal year turned out at £35.6bn, £1.3bn above the Treasury's Budget forecast. In March alone it was £10.4bn, some £3bn higher than City expectations. Although the overshoot was small compared to the usual error in predicting the PSBR, until last month many observers were confident it would turn out lower than the Treasury had forecast.
Government spending was lower than the Treasury had planned, but revenues fell even further short. Part of the explanation was the strength of exports, which cut into Customs and Excise receipts due to VAT refunds.
However, income and corporation tax revenues were below forecast too, by £0.9bn. Slower economic growth accounts for this shortfall.
The figures came as a new survey of more than 8,000 companies by the British Chambers of Commerce showed a significant slowdown in both domestic and export orders. Export orders are still strong but have fallen from recent record levels. There was a sharp fall in the balance of firms reporting rising domestic orders.
Robin Geldard, BCC president, said: "Fears of an overheating economy were certainly premature. The brakes have been put on via tax and interest rate rises." He said declining demand and cash-flow problems would add up to "a lethal cocktail" for many firms.
- 1 Rarest Beanie Baby bought for just £10 at car boot sale could be sold for £62,500 on eBay
- 2 Katie Hopkins and The Sun editor David Dinsmore reported to police for incitement to racial hatred following migrant boat column
- 3 Giorgio Armani criticises the way some gay men dress saying 'a man has to be a man'
- 4 Rebecca Francis accuses Ricky Gervais of using 'influence' to target female hunters after receiving barrage of death threats
- 5 Australian student Tommy Connolly, 23, adopts his pregnant, homeless 17-year-old cousin to give her a chance at 'a better life'
Rarest Beanie Baby bought for just £10 at car boot sale could be sold for £62,500 on eBay
Katie Hopkins and The Sun editor David Dinsmore reported to police for incitement to racial hatred following migrant boat column
'Jihadi John': Isis executioner Mohammed Emwazi wanted to wage jihad in Somalia until his friends were betrayed and killed by al-Shabaab
Parma, Missouri: 80 per cent of town's police quit after first black mayor is elected
Australian student Tommy Connolly, 23, adopts his pregnant, homeless 17-year-old cousin to give her a chance at 'a better life'
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
iJobs Money & Business
£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...
£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...