Spain Appeases The Gods of Austerity

The Spanish prime minister, Mariano Rajoy, has announced more sweeping austerity measures; including a rise in VAT and other taxes, increases to spending cuts and suspending Christmas bonuses for civil servants.

The measures are designed to cut Euro65BN from Spain's budget deficit by 2014.

Among the measures proposed are a 3% rise in VAT, cuts in unemployment benefit and civil service pay and perks. There will also be new indirect taxes on energy, plans to privatise ports, airports and rail assets and a reversal of property tax breaks.

For the moment, it appears that pensions have come out of the cuts unscathed. However, as and when the plans unravel, doubtless pensions will be placed on the altar for sacrifice to the gods of austerity.

Spanish banks will receive up to Euro100BN of aid, whilst the Spanish people pay the price of saving the banks.

Suffice to say, the plan will unravel.

Read More

Government Waive VAT on Military Wives’ Charity Single

HMT have announced the following:

"The Chancellor of the Exchequer, George Osborne, has today announced that the Government will waive VAT on sales of the Military Wives choir’s Christmas single by making an exceptional one-off charitable donation to the Royal British Legion, and Soldiers, Sailors, Airmen and Families Association (SSAFA), the charities chosen to benefit from sales of the song.   The donation will be equivalent to the sum of the VAT receipts collected on sales. 

Recognising the service of the armed forces and the high levels of public support for the single, as well as the exceptional contribution both charities make through their work with members of the forces and their families, George Osborne and Defence Secretary Philip Hammond want to maximise the donation that the charity receives by adding the VAT equivalent. 

George Osborne said: 

“Our armed forces demonstrate incredible commitment to the nation and make sacrifices for all of us.  The Military Wives choir is doing a great job of raising money for this hugely worthy cause. We will donate the tax collected on the single so that as much as possible of the money spent by the public on this fantastic song goes to charities helping our armed forces and their families this Christmas.”
Philip Hammond said: 

“Christmas can be a particularly difficult time for our brave service personnel deployed on operations, but also for their families at home. I am delighted to be supporting the Military Wives choir in this initiative, who in turn are supporting our Armed Forces community.”

Notes for Editors

The fundraising song (Wherever You Are) is performed by the Military Wives choir.  All net record proceeds are going to the Royal British Legion and SSAFA.  For more information, visit http://www.whereveryouare.co.uk/.

The donation will be equivalent to the sum of the VAT receipts collected on sales before the 31 January 2012 and will be funded by HM Treasury.

Update - On 19 February 2012 the Government announced that the sales deadline of 31 January would be extended to 31 March 2012 in recognition of the fact that the single’s Brit award nomination is likely to result in additional sales.

Read More

Inflation Own Goal

On the eve of the Budget, allegedly one designed for "growth", George Osborne has been hit by the unwelcome news that CPI inflation has risen to 4.4% in February and RPI has risen to 5.5%.

This of course, as I have noted before on this site, is not unexpected given that VAT was raised to 20% in January.

As such this inflation is an own goal scored by Osborne.

Read More

The Miguided Hawks of The MPC

The Telegraph reports that according to the latest MPC minutes, released today, the Bank of England chief economist Spencer Dale has joined Martin Weale and Andrew Sentance in calling for an interest rate rise.

The "hawks" deem inflation to be a significant threat to the economy.

They are wrong:

1 The impact of the austerity budget has yet to be felt, once that kicks in there will be a significant deflationary pressure on the economy.

2 The economy is teetering on the edge of another recession, any upward increase in interest rates will push the economy over the edge.

3 An inflation rate of 4%-5% is bearable for a year or so.

4 The "inflation" that the MPC hawks fear is largely down to the rise in VAT in January, and the ONS (as per usual) erroneously under reporting inflation (clothing) for several years.

In short, rate should be kept where they are for the time being.

Read More

VAT Increase

As the VAT increase of 2.5% kicks in today, George Osborne is spinning the tale that this is necessary in order to tackle the budget deficit.

I would agree that the budget deficit needs to be tackled. However, I make the following observations:

1 The debt of the UK stands at £4.8 Trillion, it will take much more than a 2.5% increase in VAT to tackle that.

2 As with decimalisation in the early 1970's, retailers will use this VAT rise as an excuse to round up prices. The result will be, as in the 70's, an inflationary bubble.

Read More

Rearranging The Deckchairs on The Titanic

Alistair Darling delivered his pre budget report yesterday, which in theory was designed to ease the pain of the recession.

However, at best it can only be described as tinkering with palliatives in the short term with painful costs in the medium/long term.

A cut in VAT from 17.5% to 15% will have little effect on demand, as stores etc are already offering 20% discounts; indeed it is considered likely to cause more administrative hassle than it is worth. Darling needed to cut VAT by more than this, were it to have any significant effect; regrettably the EU has placed a lower limit on VAT of 15%.

Darling made a number of predictions about growth, or rather "shrinkage", he estimated that it would be at worst - 1.25% next year and forecast that the economy would recover in 2010, with growth of 1.5% to 2.0%.

Given the Treasury's wildly inaccurate growth forecasts in the past, quite why anyone would believe these now is beyond me.

Darling offered a number of fiscal stimuli, mainly related to bringing forward government spending on roads etc and putting off planned tax rises until later.

None of these will "stimulate" the economy much, and given the fact that everyone has had due notice that taxes will rise (eg national insurance) they will not loosen their purse strings.

All in all these palliatives will have little real positive effect, and most likely will be more trouble than they are worth as Darling has added more complexity to an already complex tax system.

Read More

Sales Collapse To 1978 Levels

The Royal Institution of Chartered Surveyors (RICS) latest survey shows that estate agents in England and Wales have sold an average of 10.9 properties per firm in the 12 weeks to the beginning of November.

That is the lowest level of sales since the survey began in 1978.

The Times reports that, in response to the recession, Gordon Brown is to use this weekend's financial summit in Washington to call for co-ordinated tax cuts across the world's major economies to help reduce the depth of the global downturn.

The most effective for of tax cut will be that of cutting VAT, thus providing a direct stimulus to the consumer based economy. Cutting mainstream taxes will not achieve the same effect, as people will save part or all of the cut.

Read More

The VAT Implications of Lap Dancing

Never let it be said that HMRC does not truly understand the "human condition"; HMRC knows full well that we are mortal, and that humans take their pleasures in many forms.

It goes without saying, that all of these pleasures must be taxed.

Today a dispute between Spearmint Rhino (a chain of lap dancing clubs) and HMRC, over VAT, has finally been settled. HMRC had attempted to levy VAT on Spearmint Rhino for the earnings of its dancers.

However, Spearmint Rhino has won its High Court appeal against that ruling.

This means that the lap dancers themselves, must pay the VAT.

David Milne QC, who represented Spearmint Rhino, argued that the club should not pay because it was the dancer and not the club that provided the services.

Self-employed dancers pay to use its facilities and are paid by the clients.

A statement from HM Revenue and Customs said:

"HMRC will consider the High Court's decision carefully before deciding what further action to take, including whether to appeal."

Court of Appeal judge, Lord Justice Ward, described the club's aim in an earlier case as "to tease and not to satisfy".

Quite how the HMRC intend to quantify each dancer's earnings, is of course another story.

Suggestions welcome!

Read More