Is the concept of an annual UK budget outdated?
Brendan Sharkey · March 13th 2023 · read
Brendan Sharkey, MHA Head of Construction & Real Estate, considers this timely question, and asks if it may be time to move away from the traditional “Budget” concept, and on to a more dynamic and strategic forecasting process.
On 15 March, the Chancellor of the Exchequer, Jeremy Hunt will deliver his Spring Budget, accompanied by a full fiscal statement from the Office for Budget Responsibility. This will set out the government's plans for tax and spending policy for the year ahead.
The annual budget is the culmination of months of preparation, analysis, and number crunching, but I can’t help feeling that the idea of an annual budget is an outdated and antiquated concept in this modern world.
Businesses have largely moved on from the ridged constraints of an annual budget, favouring more dynamic rolling forecasts which consider real time data on the changing economic environment and marketplace, enabling agile, creative, and strategic decision making; much in the same way a Captain steering a ship would adjust course to take into account changing conditions at sea on a timely basis.
With calls from business to scrap the planned increase in corporation tax from 19% to 25% and fill the void that will be left when the super deduction tax relief ends this month, competing with demands for higher spending on public services and support for households with the cost-of-living crisis, the chancellor may well take the view that now is not the right time to row back on the tax hike. However, to wait another 12 months before there is an adjustment to this financial model could be a costly mistake.
The Office for Budget Responsibility, the Bank of England and the Institute for Fiscal Studies (and many other think tanks) all adjust their forecasts as and when real time data and detailed analysis becomes available; Surely the Chancellor should have the same capacity?
Annual budgets will always have their place; both in the business planning cycle, and for governments, but it should be an ongoing process of planning, monitoring, reforecasting, and adjusting. The Chancellor must be able to take advantage of more favourable economic conditions at the earliest opportunity in order to deliver on his promise to lower taxes “as soon as we can afford to”.
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