Budget 2010: Britain on 'road to ruin' without cuts

Britain is "on the road to ruin" unless action is taken in the Budget on Tuesday to cut the deficit, Chancellor George Osborne has told the BBC.

Mr Osborne said the coalition had inherited "a truly awful financial situation" and he would set out a four-year plan to deal with it.

Tough action was "unavoidable" but he aimed to provide "prosperity for all".

He also announced ex-Labour minister John Hutton would head a commission into public sector pensions.

Mr Osborne told the BBC's Andrew Marr Show that Mr Hutton's involvement would mean the commission into future pensions would be independent and have cross-party input.

'Decisive action'
The chancellor refused to give more details of the coming Budget, although the BBC understands it will include Conservative election proposals to ease National Insurance for new businesses.

It is expected the employers' threshold for NI will rise slightly - by £21 and Universities Minister David Willetts confirmed on the BBC's Politics Show there would be measures to boost firms outside of the South East of England.

This is expected to take the form of a three-year scheme to exempt start-up firms elsewhere in the UK from paying NI for the first 10 people employed.

Mr Osborne did not comment when asked about that suggestion, but did confirm there would be a levy on banks and an increase in non-business capital gains tax.

Asked about the "badness" of the Budget, he said: "I don't see it as badness, I see it as decisive action to deal with Britain's record budget deficit.

"We sit here as the country in Europe with the largest budget deficit of any major economy at a time when markets and investors and business are looking around the world at countries that can't control their debts.

"And so we've got to deal with that. In that sense it's an unavoidable budget, but what I'm determined to do is to make sure that the measures are tough but they're also fair and that we're all in this together and that, as a country, we take the steps necessary to actually provide the prosperity for the future."

But amid continuing speculation about large scale spending cuts, Labour leadership hopeful Ed Balls warned that the government was on course to "repeat the mistakes of the 1930s".

He said the cuts and tax rises set to be announced in Tuesday's Budget - which he expected to include VAT increases - showed the "unfairness" of the Conservative-Liberal Democrat government's policies.

Fellow Labour leadership contender Andy Burnham said the Lib Dems had "sold their souls" for jobs in government.

Shadow chancellor Alistair Darling said the Conservatives were "using the current circumstances" as an excuse to make "ideologically driven" cuts they had planned anyway and were "using" the Lib Dems "as cover".

While Mr Osborne declined to set out more detail of what would be in Tuesday's Budget, Prime Minister David Cameron has already suggested public sector pay and pensions will have to be restrained.

He said the budget deficit could not be dealt with by "just hitting either the rich or the welfare scrounger" and the Budget would be when "the rubber really hits the road".

Senior Tories and Lib Dems signed off the Budget on Friday with Mr Cameron, Chancellor George Osborne, Deputy Prime Minister Nick Clegg and Chief Secretary to the Treasury Danny Alexander all present.

Forecaster's warning
The involvement of so many high level figures from the two parties is being seen as an attempt to show the coalition is fully on board with the decisions to be announced in Mr Osborne's first Budget, on Tuesday.

One area of possible unhappiness among Lib Dems might be raising VAT - deputy leader Simon Hughes said "all" Lib Dems have been against it "because it's what's called a regressive tax, everyone pays it irrespective of the wealth you have".

Asked if it would be acceptable for the Budget to include an increase VAT, he said: "It won't be the most desirable outcome."

There have been suggestions some state benefits could be frozen and a survey by ComRes for the Independent on Sunday found 53% of the public backed stripping child benefit from wealthier families - including 47% of Labour voters - with 42% opposed to the idea.

But the government's poverty adviser, Labour MP Frank Field, said he was opposed to means-testing child benefit, which costs taxpayers about £11bn a year.

Meanwhile, the influential economic forecaster the Ernst and Young Item Club, which uses the Treasury's own models to make its predictions, said £48bn worth of spending cuts and tax rises were needed to eradicate the part of the deficit which would not melt away with economic recovery.

Mr Osborne confirmed that Capital Gains Tax would rise in the Budget, despite a free market think tank, the Adam Smith Institute, warning it could actually cost the government as much as £2.48bn in lost revenues.

It argues that higher tax rates will discourage individuals from selling assets, denying the government the CGT they would gain from the sale.Posted by Joe Martin providing business services for small businesses and the self employed. Find me at joemartin.co.uk

£50bn in benefits to middle earners

James Chapman write on thisismoney.co.uk:

The welfare system has strayed so far from its original purpose that more than £50bn a year paid by better-off households in tax is then handed back to them in benefits.

Research has revealed an extraordinary welfare 'merry-go-round' which means a third of taxpayer-funded benefits now go to families who earn more than the average income.
In total, 32% of all benefits paid last year - £53.5bn - went to people who are wealthier than average. They include billions paid in incapacity benefit, tax credits and disability allowances.

Even when the universal state pension is excluded, 28% of welfare payments go to the better-off half of the population, a total of £30bn a year.

Critics said millions of people are paying tax and then being 'given' their own money back - minus massive government administration costs.

The analysis of official figures, released last week by the Office for National Statistics, was carried out by the centre-Right think-tank Policy Exchange.

It shows the degree to which the welfare state has strayed from its founding aim of providing a safety net for the worst off.

Over its 13 years in power, Labour introduced hugely complex new benefits, most notably a Byzantine system of tax credits.


›› Why work when I can get £42,000 in benefits a year AND drive a Merc?
Of the major benefits, 43% of child benefit - £4.8bn - goes to those on above-average incomes of around £22,000, it shows.

Most strikingly, 25% of incapacity benefit - £1.6bn - goes to better-off households. This suggests that many of the recipients who have been signed off sick have partners earning decent wages who could support them.

The new government says at least 400,000 of the 2.6m people claiming incapacity benefit are doing so unjustifiably. It has vowed to axe the benefit entirely within four years and move claimants on to other benefits with stricter conditions attached.

The research also reveals that 40% of disability living allowance - £4.2bn - is going to those living in better-off households. The allowance has become one of the most expensive benefits, doubling in cost over recent years.

Gordon Brown's flagship policy of tax credits - supposedly targeted at the poorest households - has resulted in £3.1bn a year, or 13% of payments, going to people on above-average incomes. Critics say Labour's welfare policy was designed to create a generation of 'beholden' voters.

Figures suggest that 30% of households receive half or more of their income from state benefits. They are calling for major welfare cuts to help pay back Britain's £155bn budget deficit and fund income tax reductions.

Neil O'Brien, director of Policy Exchange, said: 'Our benefits system is totally out of control. We're wasting billions on a merry-ground that taxes people and then gives them their own money back in the form of benefits.

'Under Gordon Brown people were encouraged to become more and more dependent on the state. We need a welfare system that allows people to be self-reliant. The last government ran up debts equivalent to £100,000 per family. Now that we need to cut back, wasteful welfare spending is an obvious place to start.'

The coalition government has already taken tentative steps designed to rein in the welfare state, with tax credits for the best off targeted for the axe in next week's emergency Budget.

Former Labour welfare minister Frank Field, who has been appointed as an adviser to David Cameron, is proposing that child benefit payments could stop when a child reaches 13 or 14.



Read more:


Posted by Joe Martin providing business services for small businesses and the self employed. Find me at joemartin.co.uk

Tesco FD warns against VAT rise

Laurie McIlwee urges coalition to hold off raising VAT to 20% because it would dent the "fragile" economy

Written by David Jetuah and posted on Accountancy Age.

The FD of supermarket giant Tesco has called for the government to freeze VAT at 17.5% because the expected rise to 20% would damage the "fragile" economy.

Laurie McIlwee issued the warning as Tesco unveiled disappointing first-quarter results in a presentation to the City.

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"The recovery is happening but it's fragile and therefore the
balance is important," said Laurie McIlwee, Tesco's finance director.

"VAT is going to be part of the austerity package but it is a question of when
you do it. The best thing would be to wait a bit."

However, advisers have said the increase would be an obvious revenue-raising move for a government because it would generate about £12bn of revenue.

Putting VAT on food would be "nonsensical", McIlwee added.

Posted by Joe Martin providing business services for small businesses and the self employed. Find me at joemartin.co.uk

Cut debt now to control future, says Nick Clegg

Posted on News.BBC.co.uk/:

The government must act now to cut public debt or risk losing its ability to protect people in need, Deputy Prime Minister Nick Clegg is expected to say.

He is to give a speech in London a week before an emergency Budget to set out the government's plans to cut debt.

He will say the debt crisis in Europe has forced "action now so that we can still be in control of our future".

In the general election, the Lib Dem leader campaigned against spending cuts until economic recovery was secure.

But Mr Clegg will tell the Institute for Government: "The choices that were available to us just two months ago are no longer available. We have to take action now so that we can still be in control of our future."

As an austerity drive has swept Europe among countries striving to slash budget deficits, markets have been charging high premiums to buy bonds from governments "whose plans they distrust", Mr Clegg will warn.

"Markets have stopped believing that all European governments can service their debts."

He will add: "We simply cannot afford to let that happen to us too."

The deputy prime minister will say: "By taking action, we do something hugely important: we give ourselves the chance to shape outcome; to do all we can to bring down the deficit in a way that delivers fairness; to protect those who need it most."

To avoid tackling the public deficit "would not only be irresponsible, it would be a betrayal of our progressive values", Mr Clegg will say.

"There is nothing progressive about condemning ourselves and our children to decades of debt, higher interest rates, fewer jobs.

"How will we pursue social justice with billions of pounds of taxpayers' money disappearing down a black hole every year, just to pay the interest on our debt while our schools and hospitals fall apart?"

Posted by Joe Martin providing business services for small businesses and the self employed. Find me at joemartin.co.uk

Hike VAT say firms

The MailOnline reports:

A VAT hike in the forthcoming emergency budget would be the lesser of various evils, business leaders have declared.
According to a survey by KPMG, 61pc of chief executives say if taxes have to rise, then a VAT rise would be the best option.
A National Insurance increase is the least preferred option, according to 202 executives polled for the accountancy firm by opinion Leader research.
This would be my personal too. At least it would be paid by honest tax payers as well as tax cheats!

The article continues:

Separately, the British Chambers of Commerce urged the coalition to drop plans to ring-fence health and overseas aid spending, saying these are 'unsustainable'.
It also cautioned the chancellor against rushing ahead with the abolition of tax allowances on investment in order to fund a corporation Tax cut.
This requires 'careful study,' the lobby group said.

Posted by Joe Martin providing business services for small businesses and the self employed. Find me at joemartin.co.uk

The Cost of Retirement

Landmark reform of the UK pensions system aims to deliver increased financial security for an ageing population. But what impact will it have on small businesses?

We are living longer than ever before. By 2050, the number of people over 100 years old is expected to increase from 9,000 today to 160,000. However, there will only be two tax-paying workers for every pensioner, as opposed to the current ratio of four. To address this, the government has set about making radical changes to the existing pension system to deliver greater financial security for a rapidly ageing population.
In undertaking a landmark reform of the UK pensions system, it has completed a lengthy programme of national consultations, which culminated in the introduction of the Pensions Act 2008. From October 2012, employers across the country will be bliged to automatically enrol their staff into a pension scheme.
"It is in black and white: from 2012, employers across the country will, by law, be required to provide and contribute to pensions for their staff," says Mike Cherry, the FSB's pensions spokesman.
With employer contributions set at three per cent (employees will contribute four per cent, the government one per cent), the reforms are expected to add a significant amount to wage bills.
Evidence collected by the FSB shows that currently the majority of small employers 87 per cent of micro businesses, for example - do not operate occupational pension schemes at all. So, this reform not only represents a significant financial burden, it will also involve a lot of administration.
A simple, low-cost pension scheme, NEST (National Employment Savings Trust), will be launched in 2011 meet the needs of low to medium earners and their 'employers. It will be one of the schemes employers can use to fulfil their duties under the reforms.
While the FSB is in full support of moves to confront the pensions crisis, it is also concerned that the systems in place are overly complicated and is working hard to make them as simple as possible.

The message is clear: the reforms are coming, they will affect every business that employs people, so make sure you are prepared.
"First of all factor in the costs of these reforms into your long-term projections," says Cherry. "Read up on what exactly is required and also start to think about which provider to go with - there won't be a default pension scheme rolled out across the board - it's up to employers to make an informed decision."
"The legislation has gone through Parliament," says Cherry. "All our efforts are now being put into making sure that the operational side of these reforms is simple and straightforward."
Source: The Magazine of the Federation of Small Businesses FIRST VOICE OF BUSINESS
FSB

PENSION REFORMS: THE BASICS
~ Employees between
22 years old and state pension age earning more than £5,035 must be automatically enrolled.
~ Enrolment will be phased in over a period of time, starting with large employers, then medium and then small.
~ Employer contribution levels will be phased in gradually, starting at one per cent, then two per cent, .and finally three per cent. The jobholder's contribution will be
phased in during the same period.
~ Employers will be able to choose the pension scheme(s) they want
to use, provided the scheme(s) meet certain quality criteria.
~ The Pensions Regulator will be writing to all employers one year, and again three months, in advance of their automatic enrolment start date, detailing how to comply.

For more information about the pensions reforms, visit Department for Work and Pensions




Posted by Joe Martin providing business services for small businesses and the self employed. Find me at joemartin.co.uk

Is government consultation a bad thing?

I'll bet you in every pub, office, taxi rank, mothers' meeting... there will be a discussion on how they could run the country better than the government. The new government has invited the nation to comment on its plans and yet by my calculation less that 5,500 have posted a comment.

I understand the deadline is at the end of 10 June 2010 so if you have an opinion and I know you do get posting!

Here's my posts. Feel free to comment but make sure you also comment on the government's site too.

I don’t have a problem with DNA being stored in fact I believe everyone’s DNA should be collected and stored at birth. The only persons who should fear this are those who perpetrate criminal activity. This would act as a deterrent and help the police trace criminals sooner reducing the change of creating more victims.

I take a similar view with CCTV. Regulation may be necessary but I’d hate to see this lead to a reduction in the numbers; rather the contrary.

I believe criminals forfeit their human rights when they commit crimes so the rights of victims should take priority over their rights.

I support the changes proposed to the voting system but would prefer to see a Single Transferable Vote (STV) system introduced or at least an Alternative Vote (AV) plus system.

I believe the British Constitution should be taught is schools. With a better understanding of how the different levels of government work from the parish council to Europe and the role of the monarchy and the second chamber, how ever that evolves, which I’m also in favour of, many more might engage with politics and turn out and vote! This appears even more essential as the government roles out greater consultation with the electorate.

Why not introduce a single benefit payable to everyone, and reduce it in a similar way that tax credits diminish as income rises, and do away with all the different means tested benefits employed by both central and local governments. Of course there should be safeguards for vulnerable persons. Those that remain unemployed after say 6 months should have the benefit reduced month by month increasing the incentive to get back to work.

I believe the introduction of tax credits is a good thing and was reasonably efficient when it came into being by using existing vehicles of PAYE and Self Assessment. It was the ending of the use of those vehicles that led to the overpayments and the employment of yet more civil servants.

Civil servants pay rises in the good times so why not reduce in the bad times? Very many of those that pay the taxes and the community charge have suffered. Some have taken lower wages, some are now unemployed or taken on lower paid work and some have gone bust. Reducing civil servants and local authority pay by at least 5% just has to be done. This should be an average 5% with the top earners losing the most and lower paid a lot less.

I love the idea that local communities could share in renewable energy schemes. Maybe it will reduce the numbers NIMBYs!

I noted on Working Lunch they covered a very interesting system which basically involved a firm who installed solar panels for free http://news.bbc.co.uk/1/hi/programmes/working_lunch/default.stm maybe there should be more schemes like this. Could this method be used to increase the use of geothermal heat pumps? I can’t believe how expensive they are to install.

I welcome transparency. I and I would say the whole Nation is fed up of spin; aka dam lies. We deserve to trust that what a politician tells us is the true and not a distortion! This is especially so if the government is genuinely indenting to consult as they have done here. How else can we make reasoned opinions?

Newsnight once broadcast a piece suggesting that it should be a criminal offence to say anything during an election which turned out to be a fabrication! I hope and trust that the new government would encourages a new era setting that culture aside for ne that is open and honest and we the nation can believe and trust!


Posted by Joe Martin providing business services for small businesses and the self employed. Find me at joemartin.co.uk