Budget day is on its way
It comes at difficult time and could be easily lost among the brexit noise
Budget season is nearly upon us. In Ireland the budget is two weeks away (October 9) and the UK budget will arrive sometime in November.
Ordinarily, the business pages would be focusing on what to expect in the forthcoming budgets, however Brexit has intervened as we are entering a crucial phase in the negotiations. It is certainly the case that more and more clients are talking to us about contingency planning for no deal but, equally, the main issue for most is meeting current demand and finding staff.
These rather more immediate concerns understandably tend to receive most attention. Whilst there is plenty firms can do to prepare, it remains important to focus on facts and not the high stakes political game of poker being played out at present.
As hard as it may be, tuning out the noise and focusing on exposure and contingency planning for a range of possible outcomes remains the best advice. There is no deal until there is one and it may be that the deal appears at the last minute when nearly all hope is gone.
The Irish economy is in full budget mode, lobbying is in full swing and the push for increased spending is intensifying. Given the strength of the Irish economy, you would think the budget process would be easier but that could not be further from the truth.
The legacy of a decade of recession means there are many wounds to heal and areas of underspend to redress, not least in infrastructure. The confidence and supply agreement with Fianna Fail adds further complexity to the process.
The budget is likely to focus on infrastructure and public services with saving for a rainy day also featuring, though the scale is likely to be modest given the obvious pressures.
The UK budget will come at a very difficult time: it needs to fit into the Brexit negotiating windows and could easily be lost amongst the Brexit noise, depending on how the various summits go.
There may be policy choices that are required that simply cannot be made at such a tumultuous time and therefore it may well be a ‘ holding’ budget.
A spending review follows in the spring and it may be that the Chancellor hopes the Brexit issue will be closer to resolution by then and the focus can turn to public spending choices. There is a growing realisation that much of the tax system needs modernisation.
The rates system, the national insurance/income tax regime and the raft of duties and levies are all being impacted by the march of technological change.
Purchasing patterns are changing our high streets and the nature of work is also transforming which, in turn, is impacting income tax and corporate tax receipts. However, tax change is difficult to implement.
There is complex work to be done to understand how a tax change could impact and there will always be losers and winners.
Understandably, those who may be worse off as a result of a change are rarely happy to quietly accept their fate. The pressures on health service budgets are well documented and there are funding challenges too in education, infrastructure and other areas of public service. It is almost certain that some form of tax rises will be needed to fund health spending. In the forthcoming budget, this is likely to be in the form of small tax increments here and there, perhaps fuel duty, but longer term it may be time to revisit the national insurance concept and return to ring-fencing a chunk of tax receipts explicitly to fund health and social care. That would make it easier to link future tax increases to the rising need.
Northern Ireland is fortunate in that the generally well-received Bengoa report exists as a blueprint to modernising healthcare.
If people are lamenting the lack of budget debate, I suspect the sorts of choices that we would be discussing in the absence of Brexit would be rather unpalatable to many.
We are in an era where tax rises may be the norm for many and that is never as much fun as calculating who will be better off on the day after the Budget. We can be thankful that the number of people in work is at a record high but we are going to have to find new ways to pay for the services we expect.
Many readers may not like the direction of travel suggested and, rightly, there will be a pushback to say we can reduce costs and make savings in delivery.
However, it is time for a real debate on the structure of tax and the funding of key public services.