UK Budget 2014 Impact Analysis

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Budget 2014 – Impact Analysis


UK Budget 2014 – Impact Analysis

Table of Contents



Page No.





Impact on the manufacturing sector



Impact on the service sector



Impact on household spending and consequential impact on business








. Introduction

This report analyzes the impact of the budget for the year 2014 – 2015 delivered by the Chancellor of the Exchequer, George Osborne to the UK Parliament on 19 March 2014. The impact is analyzed mainly on three aspects – on the manufacturing sector, on the service sector and on the household spending, thus impacting the whole business arena.

In order to achieve a more resilient economy, the budget has planned to take action through active monetary policies like setting targets for inflation at 2% (Great Britain OBR, 2014) over next 12 months, deficit reduction policies, Credit easing policies viz providing export financing, etc, financial system and other structural reforms. According to Lea (2014), the UK economy is moving in a positive direction as new capital investment are moving in and this creating a confidence in the market. However, it is imperative that difficult decisions have been taken by the government to sustain the public finance recovery path of UK.

. Impact on the Manufacturing sector

The manufacturing sector accounts for over 50% of UK’s exports and plays a vital role in UK’s economic recovery (Great Britain OBR, 2014). However, as per the Executive Survey by EEF (2014), increasing input costs chiefly energy costs have been cited as the most impending factor to maintain the competitiveness and the growth of the manufacturing sector globally. See figure below:

The budget has encouraged capital investment, cut down energy costs and promoted exports by providing packages for the same. Further, with the Office of Budget Responsibility (OBR) revising its forecast for growth of 2014 from 2.4% to 2.7% and from 2.2% to 2.3% in 2015, more manufacturers can plan for growth as demand for products in domestic and overseas market are also on a rise. They can also concentrate on new export markets and develop new markets which will ensure a steady growth. Corporation tax is set to fall to 21% by April 2014 and 20% by April 2015.

Further, the following boosters have been included in the budget (Great Britain OBR, 2014):

1. According to Tallon (2013), the UK government has started investing in "Urban regeneration" seeing its importance and it now forms an important section of the urban policy of UK. Employment allowance of £2,000, starting in 2014 will help in creating more jobs and support growth in business. Employment levels have been rising to reach pre-crisis levels and since 2010, it has risen 3 times faster than earlier recession and recovery periods (See Figure 1 below), with 1 million population more at work.

1. The Annual Investment Allowance (AIA) has been increased by a double to £500,000 till the end of 2015. This will encourage investment, expansion and support businesses across UK. The OBR expects an annual business investment growth of 8% in 2014 and 9.2% in 2015. The following figure depicts percentage change over a year in business investment. This will mainly benefit the agriculture and manufacturing sectors as this would mean a 100% up-front assistance on their eligible investment in plant and machinery. According to Marsden. (2010), the eco-economy is being integrated by the coming up of new agri-food networks in local vicinity.

1. The exports segment has secured a good push through this budget which doubled the direct lending program to £ 3 Billion and also reduces interest rates by one-third. Due to this initiative, businesses can now take benefit from global opportunities without worrying too much about finances. According to Lea (2014), the year 2013 was very disappointing in terms of exports and had a negative impact on the GDP, however as per the Great Britain OBR (2014), there has been expansion of export markets and the rise in exports stood at 23% since 2010.

1. According to Raymond & St-Pierre (2010), the survival of manufacturing industry is highly impacted by R&D. Increase in R&D credits by 3.5% from April 2014 will help manufacturing and other firms to start new innovative set-ups and also invest in early-stage companies.
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1. To help energy-intensive industries, the government has provided for a £7 Billion package to help these industries augment generation of renewable energy. Further it has also capped the Carbon Price Support rate at £18 for two years from 2016-17. Existing compensation schemes have been extended till 2019-20 and new schemes have been introduced for industries in distress due to high electricity costs, resulting from renewable obligation and Feed-in tariffs for small-scale units to generate renewable energy from 2016-17. The government has also provided support to Combined Heat and Power plants by exempting the fuel costs used in ...

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