UK Budget 2013: Staying the Course on Economic Growth and Fiscal Responsibility



On 20 March, the Chancellor of the Exchequer, George Osborne, delivered his 2013 Budget. I wanted to highlight some of the key policy measures given the importance of Singapore as a global trading partner and an investor in the UK.


This is a fiscally-neutral budget which aims to build recovery based on fiscal responsibility, monetary activism and supply side reform, against a backdrop of continued economic challenges at home and abroad. The economic recovery has been more subdued and uneven than expected. The UK’s independent Office for Budget Responsibility (OBR) revised down its forecasts of GDP growth to 0.6% this year and 1.8% in 2014 (though the IMF forecasts our growth this year and the next to be higher than France and Germany). This reflects smaller-than-expected contributions from net trade, domestic consumption and business investment. Despite this, employment numbers have been encouraging, with the employment rate growing faster than in the US and

three times faster than in Germany. Beyond 2014, OBR’s forecasts for GDP growth were rosier: 2.3% in 2015; 2.7% in 2016; and 2.8% in 2017.


The Government’s commitment to deficit reduction is undimmed. The deficit has been reduced by a third over the 3 years from 2009–12, and the Government remains on course to meet its fiscal mandate (to balance the Budget by the end of a rolling, five-year forecast period) a year early. To ensure that active monetary policy continues to play a full role in supporting the economy, the Chancellor announced an updated remit for the Monetary Policy Committee (MPC), and further measures to ease the long-term pressure on public finances.


The Budget also contained further probusiness measures to deliver economic growth. Key to this is making the UK tax system the most competitive in the G20 by reducing the main rate of corporation tax to 20% by April 2015. This will directly benefit the many Singaporean businesses that have invested in the UK, and maintain the UK’s position as the preferred destination in the EU for Singaporean investments. Like Singapore, we recognise the importance of R&D to our country’s economic future. To boost innovation, R&D tax credits will be increased and the corporation tax rate on profits from patents will be reduced to 10%. To help create jobs and support small businesses, a new Employment Allowance of £2,000 per annum will be introduced from April 2014, to be offset against employers’ National Insurance Contributions.


As part of its Industrial Strategy, the Government will also provide £1.6billion of funding to support strategies in 11 key sectors, including life sciences, oil and gas, education, and aerospace. On the last, an Aerospace Technology Institute will be created in partnership with industry, providing £2.1billion of R&D support over seven years. These are all areas in which Singapore and the UK enjoy strong commercial relationships, with British companies like Rolls-Royce making longterm, high-value-added investments in Singapore’s future as a manufacturing and R&D location.


Beyond the Budget, the Prime Minister has set out an agenda focussing on Tax, Trade and Transparency for our Chairmanship of the G8 in 2013. On Tax, the Chancellor said, “We want the global rules governing the taxation of multinational firms to be updated from the 1920s when they were first written, and made relevant to the global internet economy of the 21st century.” We are leading international action on tax avoidance through the OECD as well as the G8 and at the G20 where we look forward to working closely with Singapore as Chair of the Global Governance Group.


On Trade, we will continue to push hard for finalisation and implementation of the EU–Singapore Free Trade Agreement, and for a deal on trade facilitation that will benefit not only less developed countries, but also those like Singapore and the UK that rely on trade flowing freely. On Transparency, we want to bring as many countries as possible into the Open Government Partnership that we chair this year.


Finally, a word on developments in the EU. Although last year UK firms exported more to non-EU markets than to the EU, our disappointing GDP performance stems in large part from weak demand in our traditional markets. Recent events in Cyprus show that there are still deep rooted problems to resolve in the Eurozone. But the UK remains committed to playing a full role in Europe in order to remedy the three deficits—fiscal, competitiveness and democratic—identified by Prime Minister David Cameron in his speech earlier this year.


Should they be successfully tackled, that will generate a new relationship between the EU institutions and the Member States, which will then be put to a referendum in the UK in 2017. I am keen to emphasise this because much of the commentary at the time and since has suggested that the UK was on an inexorable slide towards EU exit. We are not, though there are tough challenges to address.