The Great Debate UK

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!

Pre-budget report should support business innovation

-Danny Wootton is UK Innovation Director at Logica. 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 importance of innovation to PLCs and individual companies while the economy is in recession is relatively well understood. Recent research has shown that innovation funding has either remained protected or increased through this period.

However, teams have been pushed to meet their year and half-end sales targets, often at the expense of completing innovation projects and reaping the benefits.  This is causing concern that businesses might lose sight of the bigger picture – the long-term advances that will really stimulate economic growth.

I’d like to see Chancellor Alistair Darling appreciate this notion by announcing means to help support and foster innovation in organisations of all sizes in his pre-budget report next week, plus recognising that innovation isn’t just about research and development, it’s about actually realising an economic, social or environment benefit from the idea.

At one end of the scale, the recession has historically seen an influx of new start-ups – evidence that while the realisation of initiatives may have suffered, the strong flow of ideas has continued. It’d be positive to see new steps put in place which support and protect small businesses as they look to grow and become more established – the failure rate of early stage businesses is still way too high.

Darling could even be bold and provide incentives that foster and support collaborative innovation in a way that helps start-ups to flourish. This would stimulate these connections, and will benefit parts of the supply chain in the near future as they help to spread good, new ideas across different areas of business.

Darling’s pre-budget should support small business

-Joe White is chief operating officer at Gandi, an Internet domain name registration firm. 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 speech will primarily be about two things: reducing the size of the national deficit, and drawing the political battle lines around the economy for the general election.

In the wake of the Dubai crisis, the level of national debt in the UK has risen right back to the top of the agenda, both for business and the public at large, and as a result, the mechanisms Darling chooses to try and manage the UK’s debt will be both economic levers and a political statement of intent.

As an entrepreneur for a company which sells, primarily, technology services for businesses, I’d like to see a series of measures which help to minimise running costs for small businesses and encourage entrepreneurs to build companies in the UK.

This can include incentives around National Insurance, tax breaks on research and development activity, or limitations around any increase in capital gains tax, particularly for entrepreneurs.

Since the banking crises really took hold last year, we’ve swung from the light touch free-market capitalist approach of the early New Labour years to a more regulated approach to limit unnecessary financial risk-taking. While this is understandable, it’s important to recognise that entrepreneurs and small businesses are essential for creating jobs and wealth.

All measures proposed by Darling should be carefully constructed so that they don’t smother innovation. Otherwise, entrepreneurs may choose to build their businesses elsewhere, or won’t have the incentive to build them as quickly here.

Pre-budget report delicate balancing act for Darling

– Thomas Story is tax director at BDO. 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. -

Alistair Darling is facing the most difficult set of economic circumstances for any chancellor since the 1940s, with the projected substantial fiscal deficits for 2009 – 2010 and 2010 – 2011 likely to be revised upwards from 175 billion pounds to well in excess of 200 billion pounds. He must perform a delicate balancing act to secure the confidence of the global financial markets while protecting any fragile economic recovery and boosting public confidence.

The Chancellor is likely to increase the yield from income tax, national insurance, VAT and customs duties, which are the biggest revenue generators for the Government.

I think we’ll see the restriction or removal of corporation tax reliefs but, if the chancellor takes this course of action, he should recognise the continued impact of the credit crunch by exempting losses accumulated up to March 2010.

There could also be a boost for the hard-hit construction sector by cutting VAT on repair and refurbishment of residential property to five per cent (or even to the nil VAT rate). Elsewhere in the sector, the chancellor may crack down on certain Stamp Duty Land Tax planning arrangements for very large commercial real estate transactions. He should further clarify the anti-avoidance provisions as lobbied for by the real estate sector.

Individual taxpayers will probably escape any change to the basic and higher rates of income tax, but the chancellor may try to generate more revenue from national insurance by increasing the upper earnings limit or contribution rates or restrict personal tax reliefs for individuals paying income tax at the 40 per cent rate and the proposed 50 per cent rate.

Individual taxpayers could even be hit by an increase in VAT from 17.5 per cent to 20 per cent (or even more) but only to take effect from July 2010 0r January 2011.

Pre-budget report: Who wins and who will pay for it?

Mark Schofield is a  tax partner at PricewaterhouseCoopers LLP. The views expressed are his own.

There were a number of initiatives unveiled to kick start the UK economy which will increase the budget deficit for 2009/2010 to £118 billion. The Chancellor assured the House of Commons that finances would be back in balance by 2013/14 at which point the country “will only be borrowing to fund investment”. By that year the net UK government debt will be over £1 trillion representing 57.4% of GDP, compared with an estimate of £602 billion, 39.4%, for 2008/9.

Who wins with fiscal stimulus and who will pay for it? In short, everyone wins with the temporary reduction in the VAT rate to 15%, the deferral of previously announced tax rises, making permanent the compensation for the abolition of the 10p tax rate and extra help for families with children, and pensioners. There was help for business too with the ability for small and medium sized businesses to spread tax payments where they have difficulty making them. The reform of the taxation of foreign profits including the introduction of an exemption from UK taxation of foreign dividends took a significant step forward. The details of these reforms will be published next week and are eagerly awaited to see whether the overall package addresses the concerns raised previously raised.

There is a cost to all this, primarily from the reduction in the VAT rate. That will be financed by extra efficiencies in public spending, increases in National Insurance Contributions for both employers and employees, the restriction of personal allowances for those earning over £100,000 a year, and a new top rate of tax of 45% for incomes over £150,000 a year, the rises all to take effect from 2011.

Overall, a complex package with a number of initiatives intended to stimulate fiscally but also to bring the books back into balance on a year by year basis at a later date. Given the current uncertainties, time will tell whether it achieves the desired effect.

Doubts over whether pre-budget measures will prevent recession

Roger Bootle is economic adviser to Deloitte. The views expressed are his own.

The Chancellor was right to try to give some help to the economy but, while the scale of the increase in future borrowing is huge, the economic effect of the reduction in VAT will be tiny.

The size of the PBR package, about £9 billion this year, rising to £16bn next year, was roughly equal to what had been mooted in the media. But the scale of the measures, although they sound large, is in fact small.

They amount to only about 1% of GDP next year. The Treasury itself has estimated that this will reduce the extent of the downturn in the economy by just half a percentage point, not enough to prevent a severe recession.

What’s more, there must be doubts over whether they will have even that effect. As expected, the centre-piece was a temporary reduction in VAT from 17.5% to 15%. But while this measure will put money in consumers’ pockets in time for Christmas, it is not clear what impact this will have on spending or overall economic growth.

This is partly because the cut in VAT will not be fully passed on and that bit which is will be partly saved. Although the borrowing numbers reach 8% of GDP, roughly equal to what they reached in the mid 1970s and early 1990s recessions, this is predicated on the assumption that by 2010 the economy is recovering again.

We suspect, by contrast, that it will still be contracting. Accordingly, the borrowing numbers could easily end up much higher.

from UK News:

A lifeline or a time bomb?

Chancellor Alistair Darling has delivered a 20 billion pound fiscal stimulus package to get the nation spending again and mitigate the worst effects of the downturn.

He cut VAT to 15 from 17.5 percent just in time for Christmas shopping -- a move he said would put some 12.5 billion pounds in consumers' pockets over 13 months. Other measures include well-leaked plans to help homeowners, small businesses, parents and pensioners.

But government borrowing will more than double to 78 billion pounds this year and 118 billion next year before starting to come down. Darling says he will bring the public finances back into balance by 2015.

The package now sets in stone the diverging approaches towards the downturn being adopted by the main two parties. Labour is effectively spending its way out of recession, the Conservatives -- against the run of most independent economic advice -- have opted for caution. Shadow Chancellor George Osborne said the plans amounted to "putting a time bomb," set to explode in the future, under the nation's finances.

What do you think? Is this a bold and innovative way to get the economy moving again or a dangerous, debt-fuelled gamble?