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.

How will the budget play out?

-Julia Whittle is principal and head of international, Punter Southall Financial Management. 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. –

We would certainly expect Chancellor Alistair Darling to use this budget to make a strong statement ahead of the general election to try to repair public confidence, but this may be difficult without making the situation worse.

There has been huge speculation that the Chancellor will increase the rate of capital gains tax, from 18 percent to something much closer to the new 50 percent top rate of income tax but this is unlikely to yield huge revenues and would add to the hit on high earners.

Marginal tax rate increases would probably be a bridge too far but some tinkering around the edges is likely– for example tax disclosure arrangements could well be extended to cover “income to capital” schemes and maybe extending HMRC powers in relation to offshore accounts.

Rumours have been rife about tax free cash being taken away from pension scheme benefits. However, this is unlikely due to the hugely damaging effects of retrospective taxation.

Inheritance tax changes are unlikely for this budget although means testing for child benefits could be slipped through. Venture Capital Trust/Enterprise Investment Scheme relief could be targeted but certainly wouldn’t send out the right message for a Chancellor supporting economic recovery.

Finally, National Insurance was hit last time so Darling probably won’t try another rise quite so soon, though VAT is always a target.

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.

Price of tax collection hits small businesses hardest

The cost of tax collection in the UK is almost 20 billion pounds per annum, according to a recent report from Britain’s Institute of Economic Affairs, a free-market lobby group.

The amount reflects the cost of compliance and administration as well as Britain’s handicap of having the longest tax code in the developed world, co-authors Francis Chittenden, Hilary Foster and Brian Sloan write in “Taxation and Red Tape”.

“The authors believe that the cost of tax-related red tape to businesses could be reduced by about 5 billion pounds,” says Philip Booth, editorial and programme director of the IEA, which published the research.

“This may not sound a lot but the burden of tax compliance on small businesses is disproportionately large. This burden remains hidden from public view but the costs are very real.”

The authors also argue for the abolition of the annual Finance Act.

These issues should be addressed by political parties in the lead-up to the general election, Booth told Reuters in an video interview at his London office.

You can watch the video below or if you can’t see it, click on the headline of this blog post to view it.

Budget should pave way for businesses to hire

- Joe White is chief operating officer at gandi.net. The opinions expressed are his own. He will participate in a in a Reuters Budget live blog at noon GMT on Wednesday, March 24, 2010. Please tune in and join the discussion.-

With the general election just around the corner, chances are that this will be a very safe budget from Chancellor Alistair Darling.

He will want to defer as many unpleasant decisions until after the election, look responsible, and emphasise that Labour is the safest pair of hands for the economy.

And he’s in a better than expected position to do this. The overall amount of borrowing for this year has been revised down several times, and it could be as low as 170 billion pounds by the time of the budget speech.

While this is still a massive figure, it’s better than it could have been and means that he can afford to reduce some of the UK’s national debt with the savings (look responsible), and spend on a few very targeted programmes designed to stimulate the economy (appeal to voters).

These programmes will likely focus on issues that everyone can agree on so that they appeal to people beyond the core Labour heartland.

The Budget: What’s it got to do with economics?

- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. He might participate in a Reuters Budget live blog at noon GMT on Wednesday, March 24, 2010. Please tune in and join the discussion.-

The UK media have a long-established tradition of investing Budgets with a theatrical level of tension far in excess of their economic importance. It remains to be seen whether they will consider next week’s budget worth the effort of building up, because it is likely to be a complete non-event.

In fact, it ought to prompt the question: why on earth do we need a budget only six weeks before a general election has to be held? Why could it not be postponed? After all, barring a cataclysmic event in the security domain, the new government will immediately set about preparing its own budget, making next week’s farce totally and instantly irrelevant.

The answer, of course, is that this will be a Budget for the benefit of the Government, not for the UK, and as such it will have nothing whatever to do with economics and everything to do with politics. In this most cynical of exercises, every penny will have been calculated to ingratiate the current administration with one or other sector of the electorate while catching the Tories off balance – not very hard to do, given the slow-witted reactions we have seen from the Cameron-Osborne team so far.

On April 1st, fuel tax is due to rise by 2.5p. It would be no surprise if this long-scheduled rise were abandoned or postponed (the distinction is meaningless in this context), allowing the Government to appear to be listening to peoples’ concerns (“feeling our pain”) while costing virtually nothing. You might think that reducing tax revenue ought to be the last thing on the mind of a Chancellor facing the largest peacetime fiscal deficit in our history, but it would be entirely consistent with the scorched-earth policies we have already seen.

Mention of scorched-earth policies reminds us of the paradoxical state of affairs in Britain’s political economy today.

For months now, the PM in his desperation appears to have been restrained only by his cabinet colleagues from bringing the whole house down Samson-like on the heads of his tormentors, which in his paranoid state means all of us.

The phoney budget

Thomas Story is tax director at BDO. He will participate in a Reuters Budget live blog at noon GMT on Wednesday, March 24, 2010. Please tune in and join the discussion.-

The March 2010 Budget, to be held next Wednesday, will inevitably be highly political as it is effectively the starting gun for the general election campaign. In this context, further significant fiscal measures to tackle the 178 billion pound government deficit will almost certainly be postponed.

Whatever the political colour (or colours) of the next Government, tough decisions will need to be taken in a second Budget within months of the general election. Individual taxpayers and businesses should steel themselves for a frustrating period of uncertainty as party politics overshadow the uncomfortable fiscal imperative to raise significant additional tax revenues as a contribution, alongside significant public spending cuts, to curb the unsustainable fiscal deficit.

In the wake of the credit quake we have seen a 42 billion pounds fall in tax collections. This leaves the Chancellor very little room for any tax cuts to curry favour with voters but, equally, he dare not raise taxes significantly in a Budget held only a few weeks before a general election. We can expect a ‘Phoney Budget’ on 24th March with any hard hitting, significant tax raising measures deferred until the second 2010 Budget.

So what might the March Budget have in store?

Tax rates and allowances have already been announced in the November 2009 Pre-Budget Report and these will almost certainly be confirmed in the Budget. The Chancellor might be tempted to augment the 50 percent income tax rate for high earners with a “super tax” of, say, 60 Pre-Budget Report on income over 1 million pounds, but this is an outside bet.

A cut in the headline rate of corporation tax is a possibility, to outflank the Conservatives, who have championed this measure. This would almost certainly have to be funded by a reduction in tax reliefs such as capital allowances. Other significant fiscal reform is unlikely, as the Chancellor will be fearful of frightening the horses so close to the General Election.