The Great Debate UK
By Nick Hostler, tax expert at BDO. The opinions expressed are his own.
Following the recent loss of the UK’s AAA rating, Chancellor George Osborne will be keen to show real progress and dedication towards eliminating the UK’s structural fiscal deficit, but must balance this with ensuring that the UK is a highly competitive and attractive location for multi-national businesses. The Budget should mark a watershed moment for the coalition government as Osborne, with an eye on the next general election, treads a fine line while demonstrating an understanding of the pressures faced by individuals and businesses across the country.
Whether he strikes this balance remains to be seen, but here is what I believe the Budget will have in store.
With the announcement in the Autumn Statement of a further reduction in the main rate of corporation tax to 22 percent from April 2014 and the promised cut to 21 percent from April 2015, I predict that there will be no firm commitments on additional rate cuts in the 2013 Budget. Nevertheless, I would not be surprised if there were to be a firm commitment to introduce a flat 20 percent corporation tax rate by the end of this parliament. This would enable the coalition government to demonstrate its commitment to creating one of the most competitive corporate tax systems within the G20.
This reduction in corporation tax rate has been accompanied by the introduction of a number of very favourable tax reliefs including the headline grabbing Patent Box Regime, aimed at attracting high tech industries such as manufacturing, electronics, pharmaceuticals, and defence which are considered to be of great importance to the economy. This regime will allow companies to secure a 10 percent rate of corporation tax from April 1 2013 on all profits attributable to qualifying patents.
By Laurence Copeland. The opinions expressed are his own.
Budget Day again, and the pressure on Chancellor George Osborne is rising ominously. There is little agreement about what needs to be done, but complete agreement that something has to change because the state of Britain’s economy is simply awful.
Yet just look at the facts in the table below (all the data are taken from Eurostat, the EU’s own statistical agency). For the latest quarter, the UK economy contracted by 0.3 percent – but France’s performance was just as dismal, Germany’s economy shrank by twice as much, as did the euro zone as a whole. Only the USA achieved a significantly better outcome, a dazzling growth rate of zero – but at least it didn’t shrink. Year-on-year (Y-O-Y, as the pros call it), the picture is even clearer. Britain’s economic growth, a miserable 0.3 percent, was not significantly lower than Germany’s, but better than France’s minus-0.3 percent, or indeed the euro zone as a whole, which was down by 0.9 percent. Only the USA grew to any significant extent – and there are signs that it may now be starting to slow down, even before the impact of the fiscal cliff and the sequester are felt.
Throughout history it has always been difficult to take something away from someone once you have given it to them. Europe is finding that it is extremely difficult to reign in public finances once they start to go out of control. Democracies don’t like to vote for austerity, which is why Sarkozy lost the Presidency in France, why a radical left party came second in the Greek elections and why the Conservatives got a drubbing at last week’s local elections in the UK.
This tells us something about democracy in the western world. Governments have to manage the public finances directly – they have to sell the debt, do the sums and present budgets. However, the people who vote them into (and out of) power are the public, who rightly in most cases, believe they have worked hard, paid taxes and deserve the services and retirement promises made to them.
Accusing policymakers of acting out of sheer desperation is a pretty standard jibe by critics trying to put them off their stride.
Unfortunately, the latest round of QE came wrapped in comments from the Governor of the Bank of England which amounted, more or less, to saying: “Look! I’m staying calm – but it’s taking a hell of an effort, believe me!”
In 1998, the Japanese government was ridiculed for giving away almost $6bn (at 1998 value) of shopping vouchers. The plan was that consumers would spend more of this ‘free money’ and help lift Japan out of the seemingly endless malaise it suffered in the nineties – as many other developed economies were enjoying a roaring decade.
One of the major faults in the Japanese plan was that the vouchers could easily replace the need to spend actual money. If my groceries cost me $100 then why would I still spend $100 of cash on groceries and buy a nice meal in a restaurant with my voucher, when I could just use the voucher for those groceries?
Chancellor George Osborne has weathered criticism of his economic policies from both sides of the political isle in recent months, so it was no surprise that the buzz word from his Conservative Party Conference speech was “difficult”. Life at Westminster is difficult for Osborne at the moment and it’s unlikely to get any easier.
The problem for the Chancellor is that he has staked his credibility on bringing down the UK’s deficit, yet he is also trying to be a pioneer of growth and jobs. In the current environment neither goal looks achievable.
It is past time for monetary policy to be doing more to support recovery. The Jackson Hole conference has come and gone, and no shortage of excuses was provided for central banks to hold their fire — even though most economists acknowledged the grim outlook for the advanced economies.
Too much attention has been paid, however, to the failings of fiscal policies and to the shortfall from effects of earlier quantitative easing. Further asset purchases by the G7 central banks are needed to check not just a downturn, but the lasting erosion of productive capacity and of debt sustainability — especially when even justified fiscal and financial consolidation is undercutting short-term recovery. Easier monetary policy will increase the odds of other policies improving, and those policies’ effectiveness when they do.
from The Great Debate:
By John Lloyd
All opinions expressed are his own.
On Sunday evening, a middle aged woman waded into a crowd of rioters in Hackney and shouted that she was ashamed to be black, ashamed to be a Hackney woman – because of the destruction and fear the rioters were spreading about them. But she went further. She said - Get real black people! I am ashamed to be a Hackney person! If you want a cause, get a cause! (See video below; contains graphic language.)
I had just spent a day, in Glasgow, with men who had had a cause. Forty years ago, workers at the Upper Clyde Shipyards in Scotland’s great old industrial city, where the workforce was being cut, voted to stage a work-in: a novel form of industrial action in which those laid off reported for work as normal, and continued to build ships. The action was led by two men, Jimmy Airlie and Jimmy Reid, both charismatic, both fighting for a cause – the right to work, the protection of the working class. They got huge support, in the city, in the country, even internationally. They won, for the shipyards on the Clyde, a temporary reprieve.
The UK, USA, the PIIGS (Ireland and Italy are together in the same stye), France is in poor fiscal shape – OK, Germany is ostensibly living within its means, but it looks a lot less solvent when you remember that it has underwritten the rest of the euro zone (in large part, to protect its own irresponsible banks). In any case, as I have argued in previous blogs, this or a future German Government is likely to cave in to the pressure from its own electorate and from inflationist economists at home and abroad to join the party and spend, spend, spend. Only Australia and Canada, riding high on the commodities price boom, and a handful of small countries, look stable.
Where will it all end?
With inflation, almost certainly, but beyond that, it is hard to say. However, there is one prediction I would offer for the medium to long term outcome, and it applies not only to the euro zone, but to Britain and America too – in fact to the whole of the comfortable, complacent industrialised world – and it is this.
from Africa News blog:
New ways of managing aid are being debated in Britain as global concerns mount over a hunger crisis devastating the drought-affected Horn of Africa.
Randolph Kent, director of the Humanitarian Futures Programme at King's College in London, says the crisis provides a perfect opportunity for the British government to test its recent promise to reform how it responds to humanitarian emergencies.