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

The Secrets of The Taxman - #Taxman

Those of you who "enjoy" paying tax should make an effort to watch this programme tonight:

The Secrets of The Taxman

Read More

The Budget - Summary and Details

Here is a link to the details of today's Budget as per HMT:

Budget

Whilst here are the headlines of today's budget (source):

Tax changes

The personal allowance will rise to £9,205 in April 2013

• The top rate of Income Tax will reduce from 50 per cent to 45 per cent in April 2013.
• The Income Tax personal allowance (the amount you can earn before you pay tax) will increase to £9,205 in April 2013.
• Age related allowances will be frozen from April 2013, moving towards a simpler, single personal allowance for everyone regardless of age.
• From 2014-15, taxpayers will receive a new Personal Tax Statement, telling them how much Income Tax and National Insurance they have paid and what their money is being spent on.
• Income Tax reliefs that aren't already capped will be capped at £50,000 or 25 per cent of income, whichever is higher.
• The main rate of Corporation Tax will reduce by an additional 1 per cent from April 2012.

The new Income Tax rates for the 2012-13 tax year were published in December 2011 and will start on 6 April 2012.

• Budget 2012 - New Income Tax rates 2012-13

Benefits

Child Benefit will be withdrawn for households where someone has an income of more than £50,000

• Child Benefit will be withdrawn when someone in a household has an income of more than £50,000. The benefit will be withdrawn gradually; 1 per cent of Child Benefit for every extra £100 earned over £50,000. Only those with an income of more than £60,000 will lose all their Child Benefit.
• Servicemen and women serving in operations overseas will receive 100 per cent relief on an average Council Tax bill.

The new rates for the State Pension and benefits for 2012-13 were published in December. These rates start in April 2012.

• Budget 2012 - new pension and benefit rates

Alcohol and tobacco

• Duty rates for alcohol will rise on 26 March 2012 at the same rate as last year - two per cent above inflation. The government will shortly be publishing an Alcohol Strategy to address alcohol abuse.
• Duty on tobacco will rise by five per cent above inflation - a rise of 37p on a pack of cigarettes. This will come into force at 6.00 pm on 21 March 2012.

Motoring and travel

• Vehicle Excise Duty (car tax) will increase by inflation only.
• The government will take forward many of the recommendations from Alan Cook’s independent review of the road network, including developing a national roads strategy.
• The government will also consider new ownership and financing models for the national road network.

Housing

• A new Stamp Duty Land Tax rate of 7 per cent will be introduced for residential properties over £2 million from 22 March 2012.
• The Stamp Duty Land Tax charge applied to residential properties over £2 million bought into a corporate envelope will be increased to 15 per cent from 21 March 2012. There will be a consultation on the introduction of an annual charge on £2 million residential properties which are already contained in corporate envelopes.
• A New Buy Scheme was introduced last week to help those who cannot afford the larger deposits that some mortgage companies demand.
• The government will fund an extra £100 million of improvements in the accommodation of the armed forces and their families.

Pensions

• The current system, where pensioners can receive an additional State Pension as well as their basic pension, will be simplified. This means that future pensioners will receive only one single-tier pension, based on contributions. This is currently estimated at around £140.
• There will be an automatic review of the State Pension age to ensure it keeps pace with increases in life expectancy. Details of how this will work will be published this summer.
• There will be no changes to pension relief.

Employment

• The National Minimum Wage will increase by less than inflation, as recommended by the Low Pay Commission, to support employers and help protect jobs.
• Sunday trading laws will be relaxed during the Olympics and Paralympics.
• National Minimum Wage rates to rise in October

Digital economy

• The government has committed to providing 90 per cent of the population with access to superfast broadband.
• There will be improved mobile phone coverage for rural areas and along key roads.
• Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, London, Manchester and Newcastle are to become broadband super-connected cities, as part of the £100 million investment announced at the 2011 Autumn Statement.
• £50 million will be used to fund a second wave of smaller cities.

The economy

The UK economy is predicted to grow by 0.8 per cent this year, and 2 per cent in 2013

• The independent Office for Budget Responsibility’s (OBR) forecasts for UK growth and inflation are broadly unchanged from its November forecasts.
• Growth: its growth forecast for the UK this year is 0.8 per cent; they forecast growth of 2 per cent in 2013, 2.7 per cent in 2014, and 3 per cent in 2015 and 2016.
• Inflation: expected to fall from 2.8 per cent this year to 1.9 per cent next year, and then 2 per cent by 2016
• The OBR’s forecast for the unemployment rate is unchanged from last Autumn - the rate is expected to peak this year at 8.7 per cent and fall to 6.3 per cent by 2016.
• Borrowing: public sector net borrowing (PSNB) is expected to total £126 billion this year, falling to £120 billion next year. It is then forecast to to fall to £98 billion in 2013-14, reaching £21 billion by 2016-17.

Read More

Germany Trying To Sabotage Greek Bailout

I noted last week that "the IMF regards the EFSF as a busted flush, and has no intention of throwing any more money into the doomed project".

Unsurprisingly, the G20 have now stated categorically in their end of summit communique that no money will be forthcoming until the Eurozone puts more of its own money in, and that it is "essential" that the Eurozone boosts its own firewall first.

Meanwhile, as if deliberately trying to further humiliate and antagonise the Greeks, the German Finance Ministry has announced that more than 160 German tax collectors have volunteered for possible assignments in Greece.

Anyone would think that the Germans were deliberately trying to sabotage the bailout, and force the Greeks to walk away from it!

Given that German Finance Minister Wolfgang Schaeuble doesn't believe that the bailout will succeed, it is in Germany's interests that time and money are not wasted on it.

 

Read More

Northern Rock Sold To Virgin

Taking a short respite from international news of doom and gloom (bond yields in Spain at 7%, Germany and France fall out over role of ECB etc) it has been announced that Virgin will buy Northern Rock plc (the non toxic part of Northern Rock) for around £750M now, with a possible further £280M over the next few years.

Northern Rock plc will be rebranded as Virgin Money, which has promised not to make anyone compulsorily redundant over the next 3 years.

Taxpayers have put around £1.4BN into Northern Rock plc. Hence the loss is between £400M to £650M.

The "bad bank" part of Northern Rock is estimated to contain losses of up to £21BN.

Read More

Monetarism Rules!

The IMF has given guarded support for the government's plans for reducing the budget deficit (currently £4.8 Trillion).

The IMF's crystal ball gazers are of the view that the economy remains on track for a "moderate" recovery, if interest rates remain low and inflation eases.

However, the IMF also stated that if the high risks of an ongoing slump continue; then the economy should be stimulated with a combination of more quantitative easing and temporary tax cuts.

In other words, the economy may well need a monetarist stimulation rather than a Keynesian one.

Read More

The Budget

Today is Budget Day.

Unlike most budgets, the details of this one have been pretty well leaked or can be reasonably guessed.

The BBC has a list of guesses/leaks here Budget 2011: What we already know.

As to whether this budget really does stimulate growth, depends very much on people's "optimism/pessimism" about the future.

Given that many expect interest rates to go up, George Osborne may well have a difficult task kick starting growth no matter how much he tinkers with personal allowances.

Read More

The Budget and The £8BN "Windfall"

The ITEM club has estimated that public sector net borrowing will be around £140.2BN for 2010-11, £8.3BN less than the £148.5BN deficit forecast by the Office for Budget Responsibility (OBR).

Some sections of the media have foolishly referred to this as a "windfall", which the Chancellor can use to oil tomorrow's budget with.

This is of course nonsense, the Chancellor does not suddenly have access to an extra £8BN with which to "play":

1 This is merely a downward estimation of the level of increased debt that we are being saddled with each year.

2 The UK's total debt stands at £4.8 Trillion.

3 Our insane venture into Libya will put further holes in our country's finances.

Read More

Political Nowse

The much derided review into RBS by the FSA, which the FSA is struggling to keep from the prying eyes of the taxpayer apparently earned PricewaterhouseCoopers £7.6M for their work on the review. The taxpayers did not foot the entire bill, as the FSA charged RBS a special levy of £4.7M.

That being said, the fact that the FSA wants to keep the taxpayers from seeing what they paid £2.9M shows a remarkable arrogance and lack of political nowse.

RBS, wrt political nowse, are clearly singing from the same song sheet as the FSA as they have happily awarded their CEO (Stephen Hester) a bonus of £2.5M.

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

Irish Hold All The Cards

Irish households are coming to grips with the true cost of accepting the EU/IMF bailout, and of remaining in the Euro (nothing in life comes free), if the Irish accept the terms dictated by the EU.

It is estimated that the austerity package that the government will have to force through, in order to receive the bailout on the EU's terms, will cost the average Irish household £3K in increased taxes.

What people don't seem to realise is that the Irish government can, to some extent, stick two fingers up to the EU wrt the terms and conditions being placed on the bailout package.

The EU is desperate to avoid the contagion spreading, and to prop up the faltering Euro. Come hell or high water it will do evreything it can to keep the Euro afloat.

The Telegraph quotes Wolfgang Schaeuble, the German finance minister, who let the cat out of the bag:

"The uncertainty puts the future of our currency at stake.

If we cannot defend our common currency as a sustainably stable currency the consequences would be incalculable."

The Irish should dictate the terms of the deal to the EU, not the other way around.

Read More

The Bailout That Dare Not Speak Its Name

Ireland has finally bitten the bullet wrt the asking for a bailout from the IMF/EU. Negotiations over the terms of that bailout started today.

Key to those negotiations will be the 12.5% rate of corporation tax that has been the heart heart of Ireland's growing economy.

Whilst it will come under immense pressure from the EU to raise that rate (as the EU believes that it distorts the market), Ireland should bear in mind that the EU is desperate to shore up the Euro. The longer the uncertainty over the Irish economy continues, the greater the damage done the Euro.

All Ireland has to do is refuse to accept any bailout that ties a rise in corporation tax into the terms and conditons of the bailout. The EU is on the back foot here, like it or not it cannot afford to allow the Irish economy to go under.

The Irish people should not fret so much as their media is doing, Ireland is in a far better negotiating position than Greece was.

Read More

Endgame

Despite the fact that Ireland has yet to formally ask for an EU/IMF bailout, to rescue its banks from collapse, it has in all but form accepted that it will ask for a bailout and that it will need that money within days.

Bloomberg report that the Irish central bank Governor, Patrick Honohan, said during an interview with RTW today that he expects Ireland to ask for a bailout.

"It is my expectation that will happen, absolutely."

He went on to estimate that the interest rate on the loan would be around 5%.

There may well of course be other costs (the real reason why Ireland has been so reluctant to ask for a bailout), such as the demand by the EU that Ireland raise its corporation tax rates (currently the lowest in Europe) from 12.5%.

The Germans are, in particular, furious that Ireland has such a low rate. The Germans view this as a major distortion in the EU, sucking investment away from Germany.

Others might argue that as a sovereign country, Ireland has the right to set its taxation policy in whatever way it wishes. However, as we know, the EU's prime objective is financial and political hegemony (even if that is impractical). Supporters of the EU most certainly want countries within the EU to lose their right to set their own taxes.

It is therefore a "blessing" to those who support further EU integration that the financial crisis in Ireland can be used to push for greater hegemony, and to crush Ireland's sovereign status.

ECB President, Jean-Claude Trichet, is expected to speak on the issue later today.

Read More

Bank Levy

The government has published draft legislation for its levy on bank balance sheets.

The levy (less than 0.1%) will be applied from 2012 on the global balance sheets of UK banks, and the UK operations of banks from other countries.

In theory, it will raise approximately £2.5BN per annum.

It will be interesting to see how the banks "shuffle" their worldwide assets and liabilities in the run up to the introduction of this tax, and indeed how they "reassess" the value of their assets and liabilities.

George Osborne is anticipating some "creative accounting", and is pressuring the banks to sign an anti tax avoidance pledge.

A nice idea, in theory.

However, as any first year accounting student will tell you, tax avoidance is perfectly legal (evasion is illegal). I fail to see how the pledge, if signed, can be enforced.

Read More

Child Benefit Shake Up

I see that George Osborne used the BBC Breakfast show to announce to a bleary eyed "Monday morningish" nation that child benefit for higher rate taxpayers would be axed "by" 2013.

Someone should remind Osborne that announcements such as this should be made to Parliament first. The Tories were always quick to criticise Labour when they indulged in this form of "government via media announcement", sadly they seem to be emulating their foe.

Credit to the interviewer, who was clearly taken by surprise, for trying to press some details out of Osborne. She quite rightly made him admit that "higher rate" includes not just those on 50%, but also those on 40%.

She then asked, in relation to "by 2013", whether this would be phased in over a period of time up to 2013. Osborne gave a rambling, evasive response which did not answer the question.

Quite clearly he intends to start cutting child benefit back (for higher rate taxpayers) now, in phases, rather than leaving it all until 2013.

Read More

Wolseley To Leave The UK

Wolseley the world's largest plumbing, heating and building materials supplier, will leave the UK and relocate to Switzerland, where it regards the tax regime to be less "uncertain".

Corporate tax rates in Switzerland are regarded as being more "competitive" than the UK.

Wolseley expects its underlying tax rate to come down from 34% to 28%.

Read More

Clegg Plays To The Gallery

The coalition Deputy PM, Nick Clegg, has used his party's conference as an opportunity on BBC radio to play to the gallery and indulge in "bashing" banks' bonus schemes.

The Independent reports that he warned the banks that the government would not stand idly by if they paid senior staff "gratuitously offensive" bonuses. He has raised the prospect of a new levy on banks, insisting that the government reserved the right to take "serious action" if banks went ahead with "ludicrous, sky-high bonuses".

All very well as a soundbite.

However, in reality were the government to continue down the path of "punishing" the banks and trying to regulate bonuses schemes, the banks will simply "up sticks" and move their offices and staff to other less "hostile" regions. The resultant fall in tax revenues will far outstrip any revenues that a bank levy might hope to raise.

Read More

Farking Crazy

I see that the government, despite claiming that it wishes to simplify taxes, is planning to increase stamp duty on homes deemed to be energy inefficient.

I understand that at one stage the government had considered banning the sale of energy inefficient homes.

The new tax, which will most assuredly negatively impact the housing market, will theoretically come into force in 2012.

They must be farking mad!

Read More

Public Sector Pensions

Trouble is brewing in the public sector, the Institute of Directors (IOD) and the Institute of Economic Affairs (IEA) have (via a joint commission) called for a radical overhaul of public sector pensions in addition to the pay freeze that is to be implemented by the government for all but the lower paid.

As a starting point they have called for a 2% increase in contributions from public sector employees.

The commission also wants other major changes, as they argue that the true value of the main unfunded public service pension schemes is over 40%, yet the combined value of employer and employee contributions is approximately 20%.

Needless to say the unions representing the public sector do not buy into this argument. They point out that the pay levels of the majority of the public sector is so low, that the pension is the "reward" for accepting low levels of pay.

All very well, maybe, if the country can actually afford the cost.

Read More

Prat

"It was 7.45am on June 30 2009 when Steve Perkins a senior, longstanding broker for PVM Oil Futures was contacted by an admin clerk querying why he'd bought 7m barrels of crude in the middle of the night.

The 34-year old broker at first claimed he had spent the night trading alongside a client. But the story began to fall apart when he refused to put the customer in touch with his desk for official approval of the trades.

By 10am it emerged that Mr Perkins had single-handedly moved the global price of oil to an eight-month high during a "drunken blackout".....

The FSA will consider re-approving him as a broker after the ban, if he has recovered from his alcohol problem, but noted "Mr Perkins poses an extreme risk to the market when drunk"."

Source The Telegraph.

It is hardly surprising that the City and the financial services industry are held in such contempt, and despised, by the rest of the country.

Read More