Pre-Budget Report

Gordon Brown's Pre-Budget report has been scheduled for 5 December 2005. It is expected to contain nothing of festive cheer for small and medium-sized businesses, and even the previously triumphant Chancellor is expected to have to eat some humble pie.

The Chancellor of the Exchequer's report allows him to update MPs and the nation on the state of the economy, to make some economic predictions, and to announce specific fiscal measures.

On the state of the economy, Mr. Brown's original forecast for UK economic growth in 2005 was between 3% and 3.5%, but he has already had to admit that his prediction was rather overstated. Roger Bootle, economic adviser to Deloitte's, expects gross domestic product growth to be only 1.7% this year, with just a modest improvement in 2006. The Ernst and Young Item Club, which uses the Treasury's own economic model, says that the UK economy will grow by only 1.6% in 2005. These figures suggest that current economic growth may be at its lowest since 1993.

Other economic indicators are not encouraging. The Office for National Statistics reports retail sales growth to have fallen to 0.7% in the 3 months to October, from 0.9% in the same period last year. Meanwhile the number of unemployment benefit claimants rose by 10,700 in September and by 12,100 in October, making nine consecutive monthly increases.

Economists are predicting cuts in interest rates to 3.5% by the middle of 2006, which should result in some economic recovery. However, the current outlook has led the CBI and others to urge Gordon Brown to cut back on his public spending plans. But it is difficult to see how such a policy would square with the recent Government announcement that the Child Support Agency needs to be totally revamped, presumably at substantial cost to the public purse.

No forecasters are predicting any tax changes to the benefit of small business, while rises in unemployment and household debt, and a falling housing market, are expected to tempt the Chancellor to adopt new measures to raise more tax.

Keith Preece - Qdos Consulting Limited

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Posted 01/12/05

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