This week has probably been the most fascinating week of the year when it comes to personal finances. That’s because it has seen the Greek debt crisis drag on, with Greek banks being closed, restricting withdrawals and senior politicians being replaced. And, at the time of writing, no deal has yet been done, with the investment world still being rather nervous regarding the prospect of Greece leaving the Euro.
Furthermore, this week included the first Conservative budget since 1997, with it set to have a major impact upon the financial futures of people across the UK. While much of the talk was of George Osborne positioning himself in pole position to be the next leader of the Conservatives and of the Tories occupying the centre ground, the key takeaway was that the UK’s economic future appears to be rather different to its past. Here’s why that’s a good thing.
A New Era
After a number of years of running a budget deficit, the UK looks set to finally run a surplus by the end of the current Parliament. Of course, that sentence could have been written in 2010, when the Chancellor stated that he would balance the books within five years, but the reality has been that austerity has been rather less savage than most people expected. As such, the UK is still racking up debts from the global financial crisis, with them only set to start falling in a few years’ time (if everything goes to plan this time).
This is good news for the UK’s economic prospects, since a debt to GDP ratio of around 90% is likely to prove unsustainable in the long run. Furthermore, more secure public finances are likely to impact positively on the UK economy and create improved business confidence, investment and less fear among consumers. This point, although intangible, is critical to job and wealth creation and, while the global financial crisis is still in the minds of consumers and business people across the UK, a budget surplus and falling debt level are likely to gradually turn fear into optimism and a more positive outlook for the UK economy.
Personal Finances
Of course, changes to tax credits, increased dividend taxes and other tax increases may mean that the amount of cash in people’s back pockets comes under a degree of pressure following the budget. And, while corporation tax is due to be cut to just 18% by 2020, the introduction of a living wage of £9 per hour in the same year should offset much of the savings made by businesses in the long run.
However, the upshot of these changes is a more balanced, secure and sustainable economy which should not only create jobs at a faster pace than in the past, but also provide real-terms pay rises over the medium to long term. That’s especially the case since inflation is forecast to remain relatively low and, with interest rates themselves being low, there is plenty of scope to cool inflationary pressures should they arise over the medium to long term. Therefore, when it comes to disposable incomes, growth is likely to be felt by most workers across the UK.
Looking Ahead
Clearly, there are always potential problems ahead, with the Greek debt crisis and Chinese stock market crash being two recent examples. However, such problems have always existed and the key moving forward is that the UK economy is becoming less dependent on debt, more self-sufficient, sustainable and secure. For job creation, pay rises and investment, that’s a good thing and means that, however the Greek crisis concludes, the UK is in a relatively strong position to come through it.