The Great Debate UK

A modest proposal for solving the obesity problem

It was bound to happen. You could see it waddling into view from a long way off. We are now being told by the medics that we should seriously consider a tax on fatty foods, in order to combat the scourge of obesity. How appropriate that, according to The Independent, the Deputy PM is planning to recruit 65,000 “State Nannies”!

One wonders how the new tax will be computed. Will it be a higher rate of tax on higher fat-content foods? Will chicken breast be taxed at a lower rate than chicken legs? Will omega-3 fats be taxed at a lower rate than omega-6? Either way, we can look forward to a tabloid feeding frenzy which will make pastygate look like a Cornish picnic.

As with minimum alcohol prices, it punishes us all for the sake of a minority. Why should those of us who have no weight problem be penalised for eating fatty food which may be doing us very little harm? And in any case, what gives the State the right to stop us from harming ourselves simply on the grounds that the NHS cannot afford to carry the cost? Surely when personal liberty and the NHS are in conflict, it is the NHS which has to give way?

Given that personal liberty is now such a low priority, apparently ranking a long way below concerns like NHS costs, I want to propose a far better solution, a more direct approach that goes straight to the root of the problem, while sidestepping the distractions of having to negotiate with the food suppliers.

What about a real fat tax?

I mean a tax levied on body fat. Using the standard BMI-type calculations, we compute a weight allowance for every individual, taking account of age, height and any other factors regarded as relevant. Then, for every pound over their allowance, people pay tax at a rate increasing with their excess weight. The obese would then pay tax at a rate which reflected the burden they impose on the NHS.

Children, who should certainly not be exempt, are already weighed routinely at school. Their parents could be weighed at the end of each tax-year by their GP’s, who would provide a weight certificate in the same way they hand out sick-notes today.

A hopeful budget, but only time will tell

By Joe White

Delivering his second budget speech yesterday, Chancellor George Osborne revealed that he is leaving in place all of the austerity measures which will have a direct impact on the public sector. Meanwhile, there was a lot of policy aimed at supporting business and the private sector. The implicit assumption is that the private sector will take up the slack and continue to drive growth. This is the gamble, and we will have to wait and see if it works.

The government’s predictions for growth are down, and the reliance on the OBR forecasts could come back to haunt George if it starts to get worse and they continue to further revise down their independent estimates. Growth is the ultimate balancing factor for the public finances, so it is all important.

Simplification was a big part of this budget. Focusing on making the tax code easier to understand (43 tax reliefs abolished), and a potential merger of National Insurance and income tax will help. The calculation of payroll taxes is something that can only be done by a seasoned professional, so simplification matters and we can build on this.

Simplification also affects medium and longer term decisions to invest in the UK, as it makes a more attractive prospect for business. Flagging the 50 percent tax rate as temporary is also a nod in this direction to say, “stick around, it will get better”. Corporation tax is coming down for the same reason.

The increase in  R&D tax credits by 200 percent (rising to 225 percent) will help stimulate small business. This is linked to £100m further investment in new science facilities, funding of 12 new technical colleges and other initiatives like a reduction in times for clinical trials which will affect life science businesses. There will be further enterprise zones with tax benefits, but the welcome news is that there will be one in London, which as a major driver of UK growth is too often overlooked for additional support, particularly for start-ups and high tech businesses. A lot of this is longer term, but hopefully protects and develops the UK’s ability to build modern and high tech businesses.

For us as a business, the biggest benefit will be in the R&D tax credit, and in future the continuing reduction in corporation taxes, with the ongoing tax simplification being a good thing too. For our customers, 90 percent of which are small businesses who build and host their websites with us, the simplification of the tax code and the increase in personal allowances should reduce costs a bit and provide a bit more income. Other longer term business benefits around investment in skills and science should also help.

George Osborne and the band-aid effect

The second budget presented to Parliament by Chancellor George Osborne is likely to be less talking and more doing when it comes to bringing the UK’s public finances under control.

This won’t be to everyone’s tastes. Some argue that the UK is in less financial danger than Europe’s financially troubled states, yet Osborne is embracing deficit reduction plans with as much gusto as Ireland or Greece.

Osborne has indeed been faithful to the ‘band-aid effect’ when it comes to remedying the UK’s bloated balance sheet. There is to be no picking at the corners for him, he is getting ready to rip that plaster off with all of the short-term excruciating pain that goes with it.

The Chancellor’s fiscal targets are ambitious. He wants to virtually eliminate the budget deficit by 2014-2015 and to halve government borrowing over the same time period. Seventy-seven percent of this will be achieved through public spending cuts, with the rest of the 23 percent coming from tax increases.

In the clip above, Kathleen Brooks says this will be “a budget of no surprises.”

A budget for Growth?

By Thomas Story, Tax Director, BDO LLP. The opinions expressed are his own.

George Osborne has promised that measures to boost sustainable growth will be central to this week’s Budget. To meet this objective, the Chancellor faces the challenge of accelerating the reform of business taxation within the severe constraints imposed by the overall fiscal position and the political imperatives of the coalition government.

Many previous reforming Chancellors have benefited from a more benign fiscal outlook to facilitate fundamental fiscal reform (Nigel Lawson and Gordon Brown spring to mind). The daunting fiscal deficit means that any tax reforms must be achieved within a tax neutral framework; Geoffrey Howe’s Budgets in the early 1980s are a closer precedent but the need to accommodate both parties to the coalition agreement provides additional dilemmas in 2011.

The emergency budget in June 2010 set out the road map for corporate tax reform which outlined a vision of a more competitive tax framework with the aim of making the UK the location of choice for international business. This set out underlying principles including a commitment to a simpler taxation system with lower headline rates but acknowledged that these must be achieved for the present without any overall reduction to the levels of corporate tax receipts. In practice, this can only be achieved by restricting targeted tax reliefs.

The main rate of corporation tax is already scheduled to be cut from 28 percent to 24 percent over four years, which will be partly funded by reductions in capital allowances on plant and machinery. To maintain this momentum, the Chancellor must be tempted to go further, perhaps by announcing a target corporation tax rate of 20 percent or less. This may be achievable if there is a substantial improvement in levels of corporate profitability provided, of course, that the growth targeted by the Chancellor can, indeed, be sustained over the next four years.

To date, the other main thrust of corporate tax reforms have been to simplify and restrict the scope of rules addressing Controlled Foreign Companies (‘CFC’s) and overseas branch profits. The common themes of these reforms is to promote the UK as a location for international groups by introducing a more territorial basis of taxation and ensuring that anti-avoidance rules apply only where profits are artificially diverted from the UK.

It is understandable that the emergency budget focused on these areas given the pressing need to enhance the attractiveness of the UK as a location for large international groups. Further details of these reforms can be expected in this budget. The Chancellor must tread carefully to fulfill these objectives while taking account of the growing public intolerance for wholly artificial tax planning.

Regulatory gaps let banks off the bonus hook

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

By Peter Thal Larsen

Investment banks have reined in their worst pay excesses. But inconsistent enforcement of bonus rules in the United States and Europe means some are still getting away with bad behaviour. If banks and regulators can’t agree common standards, they risk another political backlash.

It’s almost 18 months since the world’s regulators agreed a common set of principles for bank pay. But the interpretation of those standards has been far from consistent. While the U.S. Federal Reserve has issued the institutions it regulates with broad guidelines, the European Union has passed a detailed directive, including a requirement that a proportion of any bonus should be paid in the form of contingent capital. Add in one-off levies like the UK bank payroll tax, and it’s not hard to see why banks are struggling for a common approach.

Investment banks have cleaned up their act to some extent. Most bonuses now include some deferred payment, often in the form of stock. This aligns bankers’ incentives with those of shareholders, and discourages them from taking short-term risks that may blow up in a year or two. Multi-year guaranteed bonuses have almost entirely disappeared.

However, there are plenty of signs that some banks are still ignoring the spirit of the new rules. Some banks apparently circumvented the ban on multi-year guarantees by offering prospective employees loans which would be forgiven if they stayed for several years. Others have allowed bankers to borrow against deferred stock awards. Even if these practices are not widespread, they put pressure on other institutions to follow suit.

Meanwhile, the lack of consistency makes it hard for banks to show restraint. Take Credit Suisse, which responded to the UK tax by cutting bonuses for London-based managing directors. But its rivals failed to follow its lead, and the bank is now planning to give those same MD’s a special September payout.As long as investment banks remain highly profitable, the bonuses they pay their staff will be an ongoing source of public anger.

Osborne’s budget alleviates worries over pensions tax relief

-Joanne Segars is chief executive at the National Association of Pension Funds. The opinions expressed are her own.-

Osborne delivered a tough and important budget, but one issue he didn’t really square up to was the UK’s woeful record on saving for retirement.

More discussion and policies will come soon – with the expected review of landmark pension reforms due for 2012, and with a new independent commission looking into the thorny issue of public sector pensions.

But one danger this Budget did nip in the bud was a move in the Finance Act 2010, pushed through by the previous government, which would have restricted pensions tax relief for those earning over 150,000 pounds.

We have long said that this policy was a disaster in the making. While we’re not against the principle that the highest earners should receive less tax relief, we were worried that the Act would have damaged the pensions of all working people, not just the well-off.

In short, the tax rates proposed in the Act would have encouraged the top brass to quit their workplace pension, thus eroding employer interest in those pensions. The rules would also have cost firms around 3 billion pounds to implement, and would have ensnared many middle managers with final salary pensions.

UK economy’s make-or-break budget

- Mark Bolsom is the Head of the UK Trading desk at Travelex Global Business Payments. The opinions expressed are his own-

Later today, Chancellor George Osborne will unveil his first budget, where he is widely expected to take a tough stance. To the financial markets, this emergency budget is the agenda-setting piece of this parliament. Markets, media, consumers and businesses alike have all braced themselves for what has been billed as the sharpest fiscal tightening since the end of the Second World War.

This budget will make-or-break the UK economic recovery. In order to secure the UK’s treasured credit rating, it is essential Osborne details how he will cut the deficit. In Labour’s final budget, Darling refused to elaborate on how he planned to halve the deficit in four years, which damaged the UK’s credibility. If Osborne fails to obtain the essential buy-in from the financial markets, the UK’s credit rating will fall and sterling will plunge against most major currencies.

Therefore Osborne’s primary challenge is to balance the market’s thirst for deficit cuts without derailing economic recovery – and he will have a tough job. Credit agencies have already warned that cuts must be far-reaching – most recently Fitch said the UK needs to cut its borrowing by an additional 1% of GDP per year, if the UK wants to maintain its triple AAA credit rating.

With January’s VAT rise back to 17.5%, another rate rise this budget seems likely. If it is raised to 20%, as rumoured, it would raise £12 billion, which could contribute to raising the income tax threshold (a Liberal Democrat pre-election promise).

However, 2010′s VAT rise has already been blamed as a main contributor to rising inflation, helping to push it up and above the Bank of England’s 2% target. If Osborne does raise VAT, it is very likely this will cause inflation to rise, putting more pressure on the Bank of England to raise interest rates. This is another balancing act Osborne will have to handle very carefully.

Taxes and the emergency budget

-Julia Whittle is head of International at Punter Southall Financial Management. The opinions expressed are her own. Join Reuters for a live discussion with guests as UK Chancellor George Osborne makes  an emergency budget statement at 12:30 p.m. British time on Tuesday, June 22, 2010.-

It is highly unlikely previous Capital Gains Tax proposals will be reversed in Chancellor George Osborne’s first budget.

The new rate is due to increase in line with income tax – and the option of taking it up to the highest rate of 50 percent has not been ruled out. The change could start from June 22, or even be backdated to April 6, 2010

This will hit second properties as well as investment portfolios. The tightening up of the definitions around  “private residence relief”  which enables people to sell their main residence free if tax could pour salt on the wound for second-property owners.

Regarding pensions tax relief, we believe Chancellor George Osborne is likely to stick with the principles of the current proposals, but could ease some of the administrative complexities.

There’s also a chance that he could decide to replace the current proposals with a lower annual allowance which the pensions industry has been lobbying for as a simpler alternative.

Osborne to show no sympathy for middle or high earners

-Nick Earl is partner at chartered financial planners Wardour Partners LLP. The opinions expressed are his own. Join Reuters for a live discussion with guests as UK Chancellor George Osborne makes  an emergency budget statement at 12:30 p.m. British time on Tuesday, June 22, 2010.-

On Tuesday we will hear the first budget from new Chancellor George Osborne.

From the snippets of information we have heard from the Lib-Con coalition camp, I do not anticipate this budget will show much sympathy for middle or high earners.

It is unlikely that the government will revise the higher rate tax-relief rules for those earning in excess of 150,000 pounds per annum.

A more possible outcome is that higher rate relief could be withdrawn altogether and should this happen it will be those who earn between approximately 40,000 pounds and 130,000 pounds who suffer the impact the most.

However, with this being an area that the Conservatives and Liberal Democrats disagree on, it is perhaps more likely to be a compromise where pension tax relief is scrapped for earnings over a set level.

Key tests for the emergency budget

-Thomas Story is tax director at BDO LLP. The opinions expressed are his own.  Join Reuters for a live discussion with guests as UK Chancellor George Osborne makes  an emergency budget statement at 12:30 p.m. British time on Tuesday, June 22, 2010.-

Ten key tests by which Chancellor George Osborne will be judged when he delivers the emergency budget on Tuesday:

1. Do the tax measures make a significant contribution to reducing the fiscal deficit?

The Chancellor is caught on the horns of a dilemma with the promise of various tax cuts contained in the coalition agreement needing to be offset by larger tax rises in the emergency budget to help plug the gap in the government’s finances.  However, this may allow some targeted tax cuts to be introduced from 2011 but only in small steps as the economy improves.

2. Will the total tax take be re-focused towards indirect taxes upon consumption and away from taxes upon income and profits?

It would be a massive surprise if there was no announcement of a significant VAT uplift on Budget Day. On current projections VAT is anticipated to bring in 78 billion pounds for 2010-11 and a rise to 20 percent could add up to a further 11 billion pounds. Given that the Chancellor is unlikely to have an opportunity to raise VAT again this parliament, he may be tempted to raise the rate even higher with a promise to reduce it once the deficit is under control.