The UK Pre-Budget Report 2006

By SAMI Fellows, Colin Fletcher and Michael Owen

The Chancellor’s recent pre-budget report was widely covered in the UK media, in terms of the broad policy thrusts, revenue projections and taxation targets. It was also interesting to note the emphasis on long term planning, underpinned by heavyweight policy reviews on, particularly, climate change and transport. From the viewpoint of SAMI Consulting, such longer-term thinking is essential to coherent policy formulation. However, the pre-budget report also revealed some of the limitations behind the preparation of ‘official futures’ documents.

First, in the case of the Stern report on climate change (which has raised the profile and debate around the whole issue), the scientific projections were unchallenged; and the economic consequences were then modelled and evaluated on a one-dimensional basis, using debatable assumptions regarding inter-generational evaluation of the costs and benefits of taking drastic action based on such assumptions. Organisations could benefit significantly from a scenario approach to provide a more dispassionate analysis of both the potential financial impact and policy ramifications of climate change.

Secondly, the Eddington Report on transport – whilst drawing attention to the need for policy debate – also adopted a ‘one-track’ approach to analysing the issues. The report included discussion of scenarios; however, these turned out to be sensitivity analyses around transport forecasting models. The opportunity was apparently missed to analyse in detail scenarios for UK transport, using a broad based range of assumptions and uncertainties, as reflected in SAMI Consulting’s methodology.

Thirdly, the pre-budget report made several references to the challenges of globalisation, and in particular to the role of India and China. SAMI Consulting’s recent report of the potential potential impact of India and China on the City of London is a highly apposite contribution to this area of focus. The scenarios developed in the report have relevance to a wide range of sectors and organisations that need to understand and prepare for the opportunities and threats that could emerge from these parts of the world.

Finally, the Chancellor’s projections for government revenue and expenditure are based on some “comfortable” assumptions regarding the global economy and UK growth performance. Other scenarios are equally plausible; and the implications of these should warrant careful consideration, not only by the Chancellor, but also by those companies and organisations that might be affected by significantly different outcomes.

December 2006