All three main political parties insisted at election time that frontline services for healthcare would be protected from spending cuts. This suited the Conservatives at the time with health an issue on which the public trusted Labour more. However, health expenditure has grown to more than 9% of GDP and around 20% of public spending. Does it still make sense to continue to ring-fence Health (and overseas aid), when this means that non-protected government departments face 25% real cuts on average by the end of this parliament? Indeed, if in addition Education and Defence are each limited to 10% cuts, real cuts elsewhere could reach 33%. This places a heavy burden on Welfare reform and Ian Duncan Smith the Work and Pensions Secretary, who has soon to outline a programme to start to make work pay for millions of people solely dependent on benefits, whilst making savings elsewhere. He has already announced plans to phase out the default retirement age and raise the State Pension age to 66 by 2016. Couples and lone parents will also have to downsize when their children leave home and housing benefits will be cut.
The tax increases and spending cuts announced by George Osborne add up to £40 billion by 2014/15 and, according to the Institute of Fiscal Studies (IFS), £52 billion by 2015/16. However, he did not mention that his £40 billion will account for only 35% of the planned austerity programme for the next four years, the majority already laid out for him by Alistair Darling, the former Chancellor, to cut the deficit by £73 billion by 2014/15, including a 60% drop in public sector net investment although Labour had not carried out a detailed spending review of where these cuts might apply. Thus Alistair Darling was still able to state in the Commons that the cuts could not be carried out in this form and leave the Tories with their reputation for heartlessness, unless e.g. Ian Duncan Smith and his coalition team can convince the country otherwise through their actions and by more temperate language than in the past, that there is indeed some light at the end of the tunnel.
On one hand, the independent Office for Budget Responsibility (OBR) forecasts that with growth increasing to an average 2.75% per year, employment reaching over 30 million and unemployment correspondingly falling, and with inflation within the Bank of England target of 2%, the deficit will be eliminated. At the other extreme, there is a double-dip recession because of the state of the worldwide economy and public borrowing will be 6% of GDP by the end of this parliament. Put another way, either the private sector runs down the short term surpluses it has built up from temporary retrenchment during the recession and becomes the prime driver of growth (as foreseen by the coalition), or it has moved into a protective mode of long term financial surplus with the public sector then forced to run a deficit to compensate, as in the stagnating Japanese economy of the past decade.
Archive for the ‘Welcome’ Category
Ring-Fence Health?
lundi, juin 28th, 2010Unavoidable Budget
jeudi, juin 24th, 2010George Osborne on 22nd June in his first budget, which he termed ?the unavoidable budget?, split the austerity impact between 77% of spending cuts and 23% tax increases, with the new capital gains tax top rate set at 28% and much less than the 40% or 50% rates feared.
The budget tax highlights included:
? The standard rate of VAT will rise to 20% from 4th January, 2011 although goods & services currently exempt from VAT or subject to VAT at zero or 5%, will not be affected.
? In 2011/12 the personal allowance will increase by £1000 but the basic rate limit will be cut at the same time, thus not benefiting higher tax payers.
? Capital gains tax will remain at 18% for basic taxpayers but will increase from 23 June, 2010 to 28% for higher and additional rate taxpayers.
? Entrepreneur relief will remain at 10% but the lifetime limit will rise to £5 million per person from 23 June, 2010.
? To favour business, the main corporation tax will fall to 27% from 1 April, 2011 and be reduced by 1% per year over the following three years.
? From 1 April, 2011 the small profits corporation tax rate will be reduced to 20%.
? The annual investment allowance will be cut to £25,000 from April, 2012, with writing down allowances for plant and machinery also reduced.
? From April 2011, the effective requirement to buy an annuity at age 75 will be scrapped.
For those of us who participated in the recent study group in anticipation of this budget, it?s interesting to compare the Michael Webster discussion paper (refer to Pages/Study Groups/Budget1) and the subsequent commentary by Michael Barker (refer to Pages/Study Groups/Budget2) in the index column on the right, together with our associated discussion.
Budget
jeudi, juin 17th, 2010For our Study Group Subject III on Friday 18th June, Michael Webster has submitted a Budget discussion brief which can be found under Pages/Study Groups/Budget 1 together with its associated Appendices 1, 2 & 3 in the right-hand column index. This has already been complemented by Michael Barker whose response can be referred to under Pages/Study Groups/Budget2 again in the right-hand index column.
Deferred Taxation
dimanche, juin 6th, 2010David Laws, before his unfortunate and forced resignation as the treasury chief secretary, put it very succinctly with his confident command of financial affairs in stating that government borrowing is effectively only deferred taxation.
It is on the tax front then where Conservative voters have been disappointed that a pre-election pledge to provide more generous Inheritance Tax allowances has now been withdrawn. Indeed the government is also bringing Capital Gains Tax into line with Income Tax, although the annual exempt allowance will apparently not be cut and the new rate is not likely to exceed 40%, even for 50% tax payers. This is the result of a policy compromise between the Tory right and the Liberal Democrat left, which includes Vince Cable the business secretary; however, it also reflects the grim reality of the government?s empty coffers.
Otherwise it would appear that the tactic to keep the coalition together is to not try and reach a compromise on every issue when each side could end up dissatisfied. Thus the Conservatives have kept the major part of their tougher policies on immigration and Europe, whilst the Liberal Democrats have their way on voting reform if MPs approve a referendum on this, as well as their zero tax band on the first £10,000 of earned income (which also suits the progressive Conservative approach to the less well-off, even in times of austerity).
Tax Policies
mercredi, mai 12th, 2010The brief on Tax Policies prepared by Michael Webster and discussed during our study group session last night can be found under Pages/Study Groups/Tax Policies in the right hand column index. Michael Barker who participated has added the following comments:
I thought the evening?s discussion went well though one thing we did not really explore was recouping public money thrown at banks to bale out their naked speculative greed and incompetence nor a possible taxation vis.à.vis joint-stock banks, investment banks, hedge funds and the like, and the huge quantity of daily transactions. I feel sure that there is scope for a small % take on such transactions, small % enough not to cause too much of a fuss from the money-makers but when the public see how huge profits are again being made by Goldman Sachs and the like, it would be popular with the electorate and seem like a move to make capitalism generally more fair for the common good and contribute to the pot. Given my ignorance of economics, I am probably the least useful member of the group to contribute to the debate, it is mostly my gut reaction.
I do think that there is a case for raising the lowest band of income tax to encourage people either on low incomes or on welfare support to move on to self reliance, small entrepreneurship and so on, and it would have a beneficial knock-on effect enabling them to climb up the ladder AND there should be made available a system of small ?seeding? loans which conventional banks avoid. Sadly it is too often not the indigenous British ? feather-bedded by the long-standing system of too-freely-handed-out benefits – but the immigrants, seeking to better themselves, who seem to have taken the initiative (though of course there also the free-loaders who take advantage of lax systems ? much in need of tightening up). If the ingrained British distaste latterly for being servants can be overcome (odd really, we all serve some master or other), the idea of giving tax breaks to not only well-off employers – but also the comfortably off – to seek staff, that seemed to me a good idea BUT given that many retired people who would probably be available but are on pensions though active and healthy (and probably a bit bored) – they would need to be not unduly penalized by the tax system, otherwise the incentives to resume working would be completely lost.
Clearly the Conservatives will have to bite the bullet at an early date – making it absolutely clear – without fudging the issues as the Socialists have ? and spell out the depth of the problem of debt in which Britain is mired and encourage a back-to-the-wall spirit ? the will to pull together and make some sacrifices ? promoting a new mood of freeing the people from state interference and nannying. It worked in the last war, this time the enemy is not Nazi aggression but a financial mess which affects us all and needs to be resolved with firmness. Not an easy task, there will be lots of backlash and whining. One can only hope that Cameron has the backbone to weather the forthcoming storms.
I am also convinced that the income tax system should be much more evenly graded (like the French system) to be put into a much higher bracket which reduces the incentive to succeed. As for inheritance tax, I rather agree with Michael Webster that the threshold should be raised substantially. It does not bring in that much revenue and is seemingly expensive to manage; philosophically it is perhaps a socialist-envy issue and I dare say rather outdated.
What does seem to me important is that there should be a sort of National Plan (albeit it sounds rather like Socialism) ? clearly laid out:- this is the problem we all face, these are the proposed solutions. Put to the people ? probably best in a Referendum ? they will respond positively I think to the need for belt-tightening. If not there will have to be another election and another mess. What does need to happen in my view is that systems should be made simpler and bureaucracy reduced.
Voilà – my thoughts for whatever they are worth.
Best wishes,
Michael
Welcome to Study Groups
jeudi, novembre 19th, 2009Hello,
There are a lot of subjects that have already been discussed within our internal Study Groups starting with that on the British Constitution and moving on through Britain and its position in the EU, the current Financial Crisis, future sources of Energy and the political situation in Russia. There is also the question of British expatriate voting rights and some of these issues are raised in the Pages listed on the right. Those of you who were not able to participate now have an opportunity to contribute your comments below on these and other issues as you see them, here on-line along with your fellow BCiP members.
If you are new to this forum, click on the About this Forum page on the right to find out more and how to proceed.
Welcome to our Discussion Forum
jeudi, novembre 19th, 2009We hope you will enjoy with your fellow BCiP members posting your comments on the political issues of the day. Click on the About this Forum page on the right to find out more and how to proceed.