- 23 Jun
June 2010 Budget Implications
Following the chancellor's June 2010 Budget announcement yesterday, attention now turns to the implications on the UK economy.
Some of the key aspects, that will impact the economy, from the June 2010 budget, were the rise in VAT from January 2011 from 17.5% to 20% and the cut in government departmental budgets by 25%. Whilst these measures are undoubtedly necessary to reduce the UK's huge budget deficit they are going to have a dramatic effect on our currently fragile economy, perhaps even pushing it back into recession as sales volumes drop.
The dramatic reduction in government departmental spending will have an effect on the sales volume of those within the private sector that supply the government. We have arranged funding of up to 100% against invoices to government bodies so this is likely to impact on some of our clients as they see their contracts cut or cancelled. Other private businesses that supply government departments but don't use invoice finance are going to be equally impacted by the reduction in their turnover and they will not have the cash flow benefit of being paid immediately.
The increase in VAT is going to have a general impact across to board but is particularly likely to particularly affect large value purchases, such as vehicles, as people put off those larger purchases as the additional VAT element deters them.
The key impacts of this budget on business is likely to be lower sales volumes generally and increased cash flow pressures as businesses slow down payments to cover their outgoings from a reduced cash flow due to lower sales volumes. Higher unemployment levels and capped wage increases amongst government staff will remove more spend from the economy futher impacting business sales volumes.
But what else could any responsible chancellor have done with the spiralling budget deficit?