NI cut
Responding to the economic impact of the 2 percentage point cut in national insurance, Bell said this was likely to be stimulative for the economy, even when considered against the freezing of the tax bands.
He explained: “If you take a £1bn spend on cutting national insurance, even if there is a £1bn gain from freezing the tax thresholds, it still represents stimulus for the economy because national insurance is only paid by workers, whereas income tax is paid by others.
"The young are more likely to be workers, and the young are more likely to spend their extra income. But also, the OBR assume that a cut in national insurance will encourage more people back to work, and that is stimulative.”
Konstantinos Venetis, senior economist at Global Data TS Lombard, is much more sceptical.
He felt the tax cuts in the Budget will inevitably lead to lower government infrastructure spending “which will cap” the extent to which the UK economy can grow, and that the tax cuts announced will not make up the lost ground.
Hetal Metha, head of economic research at St James Place, is more cautious, saying that were the OBR growth numbers to be wrong, there would be little “headroom” for the chancellor to take further measures to stimulate growth.
Robert Alster, chief investment officer at Close Brothers Asset Management, said the measures announced in the Budget are likely to boost GDP growth very modestly.
He said: “Overall, spending is higher by around £13bn in 2024-25, fading to c.£5bn in the final year of the forecast.
"In year one, this is meaningful, and should be modestly supportive for GDP growth. The consequence of this is diminished headroom against the government’s fiscal rules – the OBR estimates that public sector net debt will only fall by -0.3 per cent of GDP in the final year, shrinking headroom by £4bn.
"That said, these numbers assume cuts to expenditure in the next parliament and with an election on the horizon, these spending cuts may not be the current chancellor’s concern. If that is the case, it will be up to the next government to evaluate these changes and consider the impact of them on their own plans.”
david.thorpe@ft.com
