The Great Debate UK

Budget not as generous as it first appears

-Julie Meyer is CEO of Ariadne Capital, a technology investment and advisory firm backing entrepreneurs in media, moble Internet and communications. The opinions expressed are her own.-

I recently spoke at an IBM event alongside former chancellor Norman Lamont about the issues that face entrepreneurs and how we can turbo-charge these value creators to help rebuild the country’s wealth.

As I digest Wednesday’s budget and what it holds for entrepreneurs, I’m thinking back to that night and it convinced me not to be too impressed with what at first looks like it could be a generous budget.

At a simplistic level, it splits down into taxes and funding. It doesn’t get talked about much, possibly because it’s so dull, but employers’ National Insurance is one of the most onerous taxes on business. It’s ironic that entrepreneurs are taxed for paying salaries when you think about it.

Rather than hold back the increase in NI, (1 percent for employers), Chancellor Alistair Darling has opted to cut business rates for a year for firms in premises whose rates are under 6,000 pounds – feels good except that when you really look at the figures, it’s a move directed mainly at the small retailer.

More generally the extension of a time to pay scheme for corporation tax is useful, and has kept many businesses afloat this year, but reduction rather than deferment would be more helpful until certain thresholds are reached to give start-ups a true leg up.

As a general principle, I favour cutting taxes in order to stimulate wealth creating activity which grows the size of the taxable pie overall.

from UK News:

Budget for votes riskily delays UK debt pain

-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --

Alistair Darling promised no election "giveaways" and in one sense he delivered. The UK finance minister's budget is about not giving away the election. It might have been worse -- if Darling had acceded to his boss Gordon Brown's even more populist instincts. But there are vote-seeking swipes at high earners and banks, as well as a crowd-pleasing but misguided tax cut to first-time house-buyers. The UK's budget-balancing pain is being postponed and concealed. And that's risky.

The headline measure is a tax cut. First time buyers of properties costing up to 250,000 pounds won't have to pay anything to the government. Many voters will like that. They will like it, too, that people buying million pound properties foot the bill. A further bout of bank-bashing was part of the electioneering approach. Given the scandal of City rewards, few will blame Darling.

The economic impact, however, will be limited. The wobbly housing market may be helped slightly. But the UK economy needs to be buoyed by production and exports, not house price inflation.

Even so, Darling was able to present slightly better borrowing figures. VAT revenues have picked up strongly so far this year. Unemployment has not risen as much as feared. The budget projects a 167 billion pound deficit for this year, an 11 billion pound reduction on the previous forecast. And over the next several years a similar improvement is retained. But in 2010-11 the projected government deficit remains a colossal 163 billion pounds, 11 percent of GDP.

Thereafter, the deficit shrinks more rapidly as spending cuts start to take effect. But financial markets may not give much credit to these medium-term forecasts, because Darling has neglected to say where the cuts will fall -- presumably because he thinks it will be too distasteful for voters to see. What's more, he only reduces the red ink by projecting fairly rapid GDP growth of 3.25 percent next year and an average of 3.5 percent in 2012 and beyond. As the UK restructures, growth is unlikely to be high.

It is probably only a matter of time before financial markets signal, through interest rates, that their patience has run out. That moment could come soon if Greece or other troubled euro zone economies cause a new wave of risk aversion. But Labour's hope that the budget will get it through to the election will probably be fulfilled. Then it will be up to either an incoming Conservative government to tighten its belt or re-elected Labour to spell out where the spending axe will fall.

Darling’s “lame-duck” budget

- Mark Bolsom is the Head of the UK Trading Desk at Travelex, the world’s largest non-bank FX payments specialist.  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. -

While the UK’s financial media has billed the 2010 budget as Chancellor Alistair Darling’s most important – due to their assumption it will be his last – it seems that the financial markets have taken a more relaxed view, feeling its importance has been somewhat overstated by the media.

While most economists have branded this budget a ‘lame-duck’, the media’s huge sense of anticipation will leave them largely disappointed with what, I feel, will be a very neutral and vague budget.

The most interesting aspect of the 2010 budget will be how well the Chancellor balances the market’s demands for caution with the voters thirst for political sweeteners.

Fiscal tightening is sure to be on the agenda, for example, but it is extremely doubtful that Darling will delve into too much practical detail, as Labour remains reluctant to share exactly how they plan to halve our budget deficit in four years.

It will also be interesting to see whether Darling alters his growth forecasts. At the moment, I would strongly challenge the fiscal reality of the current growth forecasts and hope they are revised downwards. With our disappointing and sluggish recovery, a predicted growth of 1.25 percent for 2010 and 3.5 percent for 2011 is both bullish and unrealistic.

These forecasts are based on the idea that consumers will regain a strong enthusiasm for spending this year – as we’ve seen however, with poor retail figures and rising inflation, this is far from the case, and individuals continue to remain economically wary.

Budget? A fudge-it, more like

- Claer Barrett is associate editor of the Investors Chronicle. The opinions expressed are her own. She will participate in a Reuters Budget live blog at noon GMT on Wednesday, March 24, 2010. Please tune in and join the discussion. –

Covering the budget is usually an exciting time for a personal finance publication like the Investors Chronicle – but this year, the adrenaline has been replaced by apathy.

Is Alistair Darling really likely to make sweeping cuts or announce tax rises so close to a general election? Not ruddy likely. We think it will be the first budget of the new government that will contain most of the nasties (be it Tory, Labour, Lib Dem or a coalition of all three) and that the Chancellor’s speech will be more of a “fudge-it” than a budget.

Whilst our crack team of journalists is not expecting any earth-shattering news for private investors on Wednesday, the real budget – when it happens – offers plenty of worrying things to plan ahead for.

We have already flagged our fears about higher-rate pension contributions being scrapped – last week, our personal finance guru Maike Currie urged readers to put as much money into their pensions as possible. “It may not happen on Wednesday but higher-rate tax relief on pension contributions is a sitting duck,” she warns. The tax attack needed to shrink the burgeoning deficit is the reason why.

Capital Gains Tax (CGT) could well be hiked up from 18 % – but again, we are not anticipating this to happen on Wednesday. Aside from alienating the electorate ahead of polling day, Mr Darling could trigger a fresh housing slump or stock market crash if investors rush to take profits before the rise.

Our current editorial campaign, The Investors’ Manifesto, is calling for root and branch reform of the fiendishly complicated pensions framework in this country.  Those who have worked hard, saved diligently and invested shrewdly should be rewarded with a clear, fair and concise private pensions system – rather than simply becoming candidates for increasingly punitive taxation. To add your voice to the debate, click on the Investors Chronicle’s homepage, or leave comments below.

Unified funding required to stimulate innovation

-Danny Wootton is UK Innovation Director at Logica. 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. -

It is pretty well accepted that budget cuts in public spending are inevitable, but it is important that a plan to effectively use the funding that will be available to stimulate the economy and drive innovation forward is developed.

This cannot be achieved through a fragmented approach. Overall, we need to have a joined up funding programme to stimulate innovation; from education to research, to incubation and through to commercialisation – in effect an innovation eco-system.

By laying out a path to an innovative culture over the coming years, it allows us to maximise the returns from limited future funding available.

One of the key elements of a connected innovation eco-system is the recognition that innovation is not just about invention or research, but also about the successful exploitation of those ideas for a positive benefit, be that economic, social or environmental.

Obviously, many people will have different views on what that plan and areas of competitive advantage should be, and that’s not for me to decide, however, I would be very disappointed if it didn’t include areas such as; a low carbon technologies such as a leading position in electric vehicles and the national infrastructure needed to support them, renewable energy, eco-mobility, the space industry and future security including physical and cyber.

But as I say, we should look at all of those areas a eco-systems that need an end to end plan.

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 ‘New Economic Model’ speech,  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 there’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.

Are the markets right to fear a hung parliament?

-David Kuo is director at The Motley Fool. The opinions expressed are his own -

There is a well-trodden saying that markets hate uncertainty. Elections are inevitably uncertain, so until the votes in the next election are counted we cannot be certain which party will govern the UK.

Currently, there are suggestions that no single party may get sufficient votes to form the next government outright. It is true that the Conservatives have a strong lead over its rivals. However, with a first-past-the post voting system, it only takes a small swing away from the Conservatives to change the complexion of the next parliament.

But let’s look at the problem facing the next government, whatever its colour. It may be blue, it may be red or it may be some combination of red and yellow or blue and yellow. That said, no government can ignore the budget deficit of £175 billion and the national debt of some £800 billion.

Politicians may like to stick their finger in their ears or bury their heads in the sand and pretend the problem does not exist until the election is over. But creditors won’t forget. Following the election, the next government knows that there will be howls of anguish and squeaking of pips when taxes are increased and public spending is slashed.

No government, a hung parliament or otherwise, can afford to ignore its creditors. The alternative is an even heftier annual interest bill. The current annual interest payment is already a whopping £40 billion and could rise further.

from UK News:

Has Alistair Darling done enough to revive Labour’s electoral hopes?

So how was it for you?

Chancellor Alistair Darling threw the dice in his pre-budget report in an attempt to bolster Labour's chances of winning the general election in 2010.

From hitting bankers with a one-off bonus tax to lowering bingo duty, Darling played to the Labour heartlands, while hoping to win back voters who have been telling pollsters that they are done with Gordon Brown.

Other measures included the return of full value added tax in January, a 2.5 percent rise in the basic state pension, a 1.5 percent increase in child benefit, as well as help for small businesses and various initiatives to boost the government’s green credentials.

All this while admitting that the recession was worse than he had predicted, with the economy shrinking by 4.75 percent in 2009.

Not surprisingly Darling’s Conservative counterpart George Osborne wasn’t impressed, accusing the chancellor of  "sleight of hand" and "sneaky fiddling".

Let us know what you think of the Chancellor's pre-budget report and whether it will resuscitate Labour's electoral hopes?

Pre-budget report should simplify tax affairs for high earners

-Julia Whittle is principal and head of international, Punter Southall Financial Management. She will participate in a Reuters pre-budget live blog on Dec. 9, at 12 p.m. British time. The opinions expressed are her own.-

Management The attack on high earners has probably not reached a pinnacle and those earning above £100,000 have reason to be nervous in this current climate. The Pre-Budget statement so close to an election shouldn’t produce anything too drastic as there is little time to implement anything radical or complicated. However an attempt at some “vote winners” is a distinct possibility.

A ‘wealth tax’ has been rumoured, a potentially popular move and common across Europe, but it would be complicated to set up and would certainly deter people even more from coming to live in the UK and establish wealth here, so it is not particularly likely.

A windfall tax for a short term (maybe one year) on bonuses could be on the agenda.

IHT increases have been on the cards for some time perhaps for larger estates, for example a 50 percent rate on 1 million pounds perhaps which could be popular with grass roots Labour voters. There has been talk of an increase in the time required for lifetime gifts to become exempt – 7 years to 15 perhaps – but this is probably not exciting enough as a revenue earner.

Income tax The personal allowances for incomes of over £100,000 are unnecessarily complicated – some simplification would be welcome here but it is probably not a key item on the agenda.

Capital Gains Tax The issue of 18% capital gains tax has been discussed as a possible target for increases to bring it into line with the 50% top rate. However, this is again unlikely as it would be well out of line with other European models and not a huge vote winner, though further restrictions on adapting income to CGT rather than income tax regime are more likely. But there could be a restriction or removal in the carrying forward of losses!

Darling should take bold action in aid of UK firms

- Nick James is founder of freshbusinessthinking.com, an online business resource for entrepreneurs. He will participate in a Reuters pre-budget live blog on Dec. 9, at 12 p.m. British time. The opinions expressed are his own. -

The Pre-Budget Report was introduced by Gordon Brown in 1997 when he was Chancellor, and this Wednesday’s pre-Budget report will be delivered by his successor Chancellor Alistair Darling.

From a political perspective Darling has to deliver a PBR that can differentiate the Labour Party from the other “new centre” parties yet at the same time demonstrate that he is willing to continue to “prop” up the economy.

The notion that “the banks” are lending to SME’s with any government fuelled mandate has been discounted by owners and directors of UK firms who have all but given up on any sort of government help and now realise that any refinancing has to come from within by; cost cutting, innovation, increasing sales or entrepreneur salary sacrifice.

The impending election is going to continue to hold UK PLC back as other countries having exited the recession start to flourish we will continue to see pointless political posturing based on “sound bites” and focus groups.

What is really needed is the bravest PBR ever, a PBR that sits above politics and does what is best for the country. Imagine if there was as much support for small businesses as there has been for the banks!

Imagine if there was a major financial stimulus that helped worthy businesses to develop world class products and sell them in overseas markets – increasing sales of UK PLC.