2010 Budget: Time to face the music
- Edward Croft is CEO of Stockopedia, a UK-based website which aggregates research, commentary and analysis for investors and offers social networking opportunities. The opinions expressed are his own. He will participate in a Reuters Budget live blog at noon GMT on Wednesday, March 24, 2010. Please tune in and join the discussion. -
In his recent â€˜New Economic Modelâ€™ speech,Â Shadow Chancellor George Osborne rightly emphasised the need to restore a savings culture in this country. Investment to GDP is the lowest of any G7 country.
The Association of British Insurers estimates over 13 million people are not saving enough towards their retirement.
The gaping pension deficit to be funded by future generations means that savings and investment levels are not just parochial concerns for the investment community.
The household saving ratio has fallen from 9.2 percent to 3.9 percent in the last decade. The government deserves credit for increasing ISA allowances but thereâ€™s much more that could be done.
In a recent Brewin Dolphin survey, 47 percent of private investors called for the restoration of dividend tax credits, 36 percent for raising the Inheritance Tax threshold and 29 percent for the reduction of stamp duty on share transactions.
We can also attest to the evident need to cut the tax and administrative burden on small businesses, long described by politicians as the locomotives of the economy but with little to show for it.
Nevertheless, when we spoke to investors on Stockopedia, the general view was that this coming budget is just not the time for tax cutting.
The unfortunate reality of our macro-economic predicament means that thereâ€™s very little left in the coffers and thereâ€™s an urgent need for tough but unpopular decisions to balance the books by reining in public spending and increasing taxes.
The plea from our users was for the government to focus immediately on reducing the ballooning deficit and on simplifying the tax system.
Instead of the tinkering to assuage special interest groups, it was felt that an honest appraisal of our dire situation was needed and a collective cutting of the cloth with as few different rates as possible.
The markets were not impressed by Decemberâ€™s pre-budget reportÂ and nervous investors are looking for a clear path from Chancellor Alistair Darling towards restored macro-economic stability. To reassure them, this budget should provide for:
1.Â Â Â Â Â An immediate commitment to making the tough decisions needed to cut government expenditure;
2.Â Â Â Â Â A medium term commitment to addressing the savings gap in the UK economy
3.Â Â Â Â Â Equitable sharing of the burdens from increased taxation â€“ investors and savers are willing to share the pain in this time of crisis provided that this is done in an even handed manner.
4.Â Â Â Â Â Reduced complexity to remove the plethora of allowances, credits, exemptions that add layers of bureaucracy and give scope for evasion.
5.Â Â Â Â Â Easing the burden on entreprise by cutting administrative red tape. Why not abolish National Insurance? It is effectively a tax on income, so letâ€™s just be honest about it and save the bureaucracy and administration of two income taxes.
If these measures are not introduced in this weekâ€™s budget, precious time will be lost. The new government, assuming there is one, will certainly have its work cut out trying simultaneously to address the deficit, cut back on spending, streamline the tax regime, while introducing incentives to encourage savings.