Budget Cuts

Why The UK Government Is Implementing Major Budget Cuts?



Why The UK Government Is Implementing Major Budget Cuts?

The U.K. economy looks to be about US$ 2.3 trillion, and total government spending is about one-third of that. UK government wants to see £83bn of savings by 2014-15.

Every area of government - apart from the [National Health Service] and overseas development aid, which the coalition has promised to protect - will have to reduce its budget by an average of 25% unless the Department for Work and Pensions can come up with further savings in the welfare bill. (www.bbc.co.uk)

The UK Government has taken some constructive steps on taxation such as setting up the Office of Tax Simplification and lowering the rate of corporation tax already. But given the potential mobility of much manufacturing investment, it needs to go further to create a truly competitive tax regime. For example, manufacturers tend to replace their machinery and equipment every seven to eight years but the reduction in capital allowances next year will mean it will take 33 years for the full cost of business investment to be written off against tax. We have to recognise the true cost of modern plant and equipment with short lives.

Similarly, the research and development tax credit needs to go beyond its current support for the research stage of innovation to include the significant development costs and risks borne by manufacturers.

Environmental taxation also needs to be made simpler and more competitive. If the Government goes ahead with its current plans for a carbon price floor, some manufacturers will see their electricity use taxed four times. Other environmental taxes therefore need to be scrapped or reduced.

The Government has shown it is serious about reducing regulation by introducing a "one in, one out" rule and by ensuring that all new regulatory proposals are rigorously scrutinised. It should now add some extra transparency by ensuring that the final opinions of this scrutiny body, the Regulatory Policy Committee, are published before any new regulation is put before Parliament.

In addition, rather than trying to unpick individual items of regulation, it should examine entire areas to address unnecessary complexity, duplication and contradiction. Its current review of employment law is a positive start but waste policy and climate change need urgent attention.

Growing businesses will also only be able to fulfil their ambitions if they can access the finance they need to, ...