Two Budgets about to be scrapped?

Another one of Gordon Brown's great ideas that ultimately proved to be a waste of time!

Are the GDP figures believable?

The British economy contracted by 0.3% in the final quarter of 2012, leading to fears that the economy could plunge into a triple dip recession.

The Office for National Statistics (ONS) said the fall was primarily down to a drop in mining and quarrying, following delays in maintenance at the UK's largest North Sea oil field.

The economy actually grew by 0.9% in the previous quarter, boosted by the “feel good” factor of the London 2012 Olympic Games.

Growth over the entire year was flat, meaning the economy is still some 3.3% smaller than it was at its pre-crisis peak.

The biggest factor for the drop was mining and quarrying output falling by 10.2% - its most dramatic decline since records began 16 years ago - driven by disruption to North Sea oil and gas fields.

If oil and gas extraction are excluded from the GDP calculations, the economy would only have shrunk by 0.1% in the fourth quarter, the ONS said.

The ONS said it was a "bumpy” and “sluggish” economy.

Manufacturing fell by 1.5% in the fourth quarter, the services sector was flat, but construction output rose by 0.3%.

A Treasury spokesman said: ‘It underlines what the Chancellor said at the Autumn Statement and the Governor of the Bank of England said this week: while the economy is healing, it is a difficult road.

‘While today's data confirms the scale of the challenge facing the British economy, this week has also seen the strongest yearly increase in jobs for over 20 years. A million new private sector jobs have been created and the deficit is down by a quarter.’

Chancellor George Osborne said the figures were "a reminder that last year was particularly difficult, that we face problems at home with the debts built up over many years, and problems abroad with the eurozone, where we export many of our products, deep in recession.’

‘Now we can either run away from those problems or we can confront them. And I'm determined to confront them so we can go on creating jobs for the people of this country,’ he added.

Shadow chancellor Ed Balls said: ‘This government's failing plan has now seen our economy stagnate for over two years and borrowing is now rising as a result.’

Cuts - what cuts again!!

The IMF’s chief economist has urged Chancellor George Osborne to consider easing off on some of his planned austerity measures, as UK economic growth remained sluggish.

Olivier Blanchard told Radio 4's Today programme on Thursday that the state of the British economy had clearly deteriorated a fact that had led the fund to revise down its forecasts for UK growth to 1pc this year.

He suggested that the forthcoming March Budget would be an opportune moment to ‘take stock’.

‘We said that if things look bad at the beginning of 2013 – which they do – then there should be a reassessment of fiscal policy,’ he said. We still believe that. You have a budget coming in March and we think this will be good time to take stock and see if some adjustments should now be made.’

‘We've never been passionate about austerity. From the beginning we have always emphasised that fiscal consolidation should be slow and steady,’ he said.

Blanchard added that “slower fiscal consolidation in some form may well be appropriate – the exact numbers I don’t know - that has to be worked out.”

But speaking in Davos this morning, Prime Minister David Cameron robustly defended the Government’s economic record:

‘How do we succeed when other nations are growing, changing, innovating so fast? A lot of the answers are clear. Deal with your debts. Cut business taxes. Tackle the bloat in welfare. And crucially: make sure your schools and universities are truly world class.’

‘In the UK we've been doing all these things. Less than three years in and we've cut the deficit by a quarter. Our corporation tax rate is the lowest in the G7.’

The IMF has downgraded its expectations for UK growth to just 1.9% in 2014, compared with the 2.2% previously predicted.

Pensions update

On 14 January the Department for Work and Pensions (DWP) published their white paper 'Single tier pensions - a simple foundation for savings'. The proposals within this paper will affect Employers and Pensions Providers that administer Contracted-Out Defined Benefit Schemes.

The new single-tier pension will be introduced in April 2017 at the earliest. This reform will affect people who reach State Pension age from the time it is introduced. Current pensioners and those reaching State Pension age prior to introduction of the single-tier pension will not be affected and will continue to receive their State Pension in line with existing rules.

These reforms will provide a foundation to support automatic enrolment launched in October last year, which will see six to nine million people saving more, or saving for the first time, into an occupational pension.

The white paper is available from DWP.

State pension reform

The government has set out plans to reform the state pension by 2017 introducing a single state pension payment for all workers, including people who have taken career breaks and the self-employed.

The plan is to introduce a simple flat rate pension set above the means test (currently £142.70) and based on 35 years of National Insurance contributions (NICs) and will hugely benefit women, low earners and the self-employed, who under existing rules find it almost impossible to earn a full state pension. This compares with a current basic state pension of £107 per week. The new system will become operational in 2017.

There are currently 11.5m people claiming the state pension. Of those, 2.8m women receive a state pension of under £80 a week due to incomplete contributions.

Minister for pensions Steve Webb said: ‘The current state pension system is too complicated and leaves millions of people needing means-tested top-ups. We can do better. Our simple, single tier pension will provide a decent, solid foundation for new pensioners in an otherwise less certain world, ensuring it pays to save.’

Joanne Segars, NAPF chief executive, said: ‘People like their pensions simple. This will set a clearer, fairer state pension that offers an easily-understood foundation on which they can plan their retirement. A flat rate system also dovetails with the recent auto-enrolment reforms by helping workers see what they need to save in their new workplace pension.’

The abolition of the contracting out NI rebate will impose a £6bn new tax burden on workers and companies.

Brian Strutton, GMB national secretary for public services, said: ‘The new flat rate state pension should be fairer than the complicated basic plus additional pension set up it is intended to replace but the detail will need to be scrutinised carefully.

‘There is a very serious consequence arising from the ending of contracting out and that is the increase in National Insurance contributions that employers and employees in defined benefit pension schemes will have to pay. For employers, that is 3.4% of the NI ranking earnings and for the 6m employees affected it will be an extra 1.4%.’

The reforms will also result in changes to the way final salary pension schemes are managed. ‘These are complicated reforms that will mean big changes in the way many company pensions are run. We are glad that the government recognises that challenge and is supportive of the need to manage the transition carefully,’ added Segars.

SNP inflate North Sea Oil tax revenues

The Scottish government has been accused of trying to dupe voters by inflating claims about the value of North Sea oil and gas reserves by a staggering 50%.

SNP leader Alex Salmon claimed last year that the watery depths off Scotland were holding 24bn barrels of crude oil, worth £1trn. Yet in his New Year address, while Salmond clung to the 24bn figure, he upped his projection by 50% to £1.5 trillion.

But in a stinging attack in Holyrood on Wednesday, Scottish Conservative energy spokesman Mary Scanlon, said the First Minister was again trying to mislead the public to help his plans to wrench Scotland from the Union.

She said: ‘What we have here is the amount of oil in the North Sea still to be extracted remaining the same, and the price of oil falling over an 11-month period.

‘Yet the First Minister claims that that same resource which was worth £1 trillion is now worth £1.5 trillion.

‘This is the sort of misinformation that the people of Scotland do not want in the lead up to the referendum.

‘This is why the public are beginning to lose trust in what Alex Salmond says.

‘As it stands oil and gas revenues account for only around 0.7% of UK GDP - compared to 17.7% of Scottish GDP in 2010/11.

‘Any future volatility in this sector would be very challenging for a Scottish economy so dependent on this source of income.’

And SNP energy minister Fergus Ewing said yesterday that increasing the rate of recovery by just 1% would result in £22bn boost in tax revenue.

But he failed to mention over what timeframe. A Scottish government spokeswoman later admitted that the figure was derived from estimates of the tax take over the whole life of the wells, of around 40 years.

Finance committee member and Labour MSP Michael McMahon, said: ‘You always get the impression that the SNP are trying to mislead with these figures, as they like to only show one side of the picture, as they never like to consider the £30bn-£50bn in North Sea decommissioning costs that would be landed on an independent Scotland’s doorstep.’

US fiscal cliff

Squabbling politicians in the US have managed to delay an economic nightmare of substantial tax rises and spending cuts, as its richest citizens alone are set to bear the weight.

The so called ‘fiscal cliff’ was averted at the eleventh hour, after crisis talks between Republicans and Democrats managed to agree on a tax rise for only the highest earning of US citizens.

President Barack Obama told a White House press conference: ‘I will sign a law that raises taxes on the wealthiest 2% of Americans... while preventing a middle-class tax hike.’

The deal will mean those earning $400,000 (£246,000) or more will be impacted by income tax rise to 39.6%, though Democrats had initially been pushing for earners as low as $250,000 to also be affected by the hike.

Another feature of the compromise agreement will see inheritance tax rises of 5% after the first $5m for individuals ($10m for a couple),

Upon news that the Senate and the House of Representatives voted through the bill, financial markets around the world reacted positively with the FTSE 100 share index even surpassing the 6,000 benchmark for the first time in 17 months on the back of the news.

Why is GDP growth slow?

I was reading an interesting article in the Sunday Times by the economist, David Smith. He was trying to explain why the GDP growth figures are so poor when employment has risen by 500,000 in the last twelve months and reached record levels. Unemployment is now at the same level as pre the financial crash in 2008.

One answer that he has identified is the impact of the North Sea oil economy. It is...

declining rapidly - in fact it is running at about 20% of where it was in 2009.

However, the real (i.e. non oil) economy is growing strongly.

The net result is that the decline in the North Sea oil economy is having a depressing effect on the overall growth in the UK GDP.

If his analysis is then this is good news - unless you happen to be Scottish and in favour of independence!

Pensions hayhem

EU “Solvency II-style” pension proposals will saddle UK businesses with £350bn of extra costs, cause 180,000 jobs to be slashed and damage long term growth prospects by 2.5%.

That’s the doomsday scenario being painted by the Confederation of British Industry’s (CBI) latest research on the European Commission’s desire to impose a new funding regime for pensions, which would force employers to divert hundreds of billions of euros into defined benefit schemes.

The plans would compel pension schemes run by individual employers to implement similar changes to those proposed for insurance firms – which under the EU’s “Solvency II” rules must have sufficient funds in place to pay out for a once-in-200-years catastrophe.

But the analysis, by independent economic consultants Oxford Economics, supports the CBI and other European business leaders’ fears that the reforms would be a “disaster”.

The body has branded the planned reforms “wrong-headed” as pension funds - unlike insurance schemes - never have to pay out all benefits at once. Pension liabilities are spread across many years.

It says the proposals would force firms to cut jobs and to pass costs on to customers and employees to meet the additional demands from Brussels.

And it says the plans would require pension schemes into "low-risk" investments in "safer" products such as government bonds – reducing returns and forcing up costs for employers, as well as discouraging funds from investing in long-term assets such as infrastructure.

The proposals are part of the Commission’s proposed review of the Directive for Institutions for Occupational Retirement Provision (IORP), which lays down EU-wide rules to strengthen pension security. It is inspired by the ongoing Solvency II process – a fundamental review of the capital adequacy regime for the European insurance industry.

CBI chief policy director, Katja Hall said:

‘Imposing £350bn more costs on business would be a disaster for the economy and for pension saving. The long term economic outlook is so fragile and uncertain that it is crazy to entertain proposals which would cost jobs and cut so deeply into our long-term growth and competitiveness.’

‘Workplace pensions are vital to ensuring people have enough money for their retirement when life expectancy is rising – so future generations are not hit with huge bills or driven into poverty. The European Commission’s wrong-headed proposal will do nothing to help us cope with the burden of retirement.’

The report added that a shift in pension funds’ financial portfolios away from equity would cause additional downside risks by weakening the ability of small innovative growth firms to raise money for expansion and by increasing the risk of business liquidation.

Triple dip myth

Unemployment falls again

No sign of triple dip then Mr King!!!

Autumn Statement

Chancellor of the Exchequer, George Osborne has delivered the 2012 Autumn Statement providing an update on the Government’s plans for the economy based on the latest forecasts from the Office for Budget Responsibility. In his statement the Chancellor outlined a number of tax measures set to drive growth and reduce the country’s deficit.

The key tax measures announced are outlined below:

Business Tax

Corporation tax rate cuts and the cutting of red tape for small businesses as previously announced are on course. The main highlight for businesses is the 10 fold increase in the annual investment allowance taking effect from 1 January 2013. The measures announced are as follows:

•In addition to the Budget 2012 announcement, the main Corporation Tax rate for Financial Year 2014 will be reduced by a further 1% to 21%.

•As already announced, the main Corporation tax rate for Financial Year 2013 is 23% and the Small Profit rate is 20%.

•The Annual Investment Allowance will be increased from £25,000 to £250,000 per annum for a 2 year period commencing from 1 January 2013.

•A simpler income tax scheme for small unincorporated businesses will be introduced for the tax year 2013-14 to allow:

•Eligible self employed individuals and partnerships to calculate their profits on the basis of the cash that passes through their business. They will generally not have to distinguish between revenue and capital expenditure

•All unincorporated businesses will be able choose to deduct certain expenses on a flat rate basis

Personal Tax/Benefits and Credits

The personal allowance will increase and the higher rate of threshold will be capped and certain benefits which were frozen will increase by 1% in 2013-14.

•For the tax year 2013-14 the Personal Allowance will increase to £9,440 and the basic rate limit will be set at £32,010.

•For 2014-15 and 2015-16 the increase in the higher rate threshold will be capped at 1%.

•For 2013-14, there are no changes to the percentage rate of contribution for Class 1 and Class 4 National Insurance contributions (NICs) but there are changes to all of the thresholds and limits.

•Child Benefit rates are frozen in 2013-14 and will increase by 1% in 2014-15 and 2015-16.

•Tax credits disability elements are increased in line with Consumer Price Index (CPI).

•Other elements are either frozen or will increase by 1% in 2013-14.

•All rates are increased by 1% in 2014-15 and 2015-16.

•Guardian's Allowance is increased in 2013-14 in line with CPI.

The full table of rates are available from HM Treasury.

Pensions Tax Relief

As expected the annual allowance for pensions tax will be reduced to £40,000 which the Chancellor says will affect the top 1% of savers.

For tax year 2014-15 onwards:

•the annual allowance for pensions tax relieved savings will be reduced from £50,000 to £40,000

•the standard lifetime allowance for pensions tax relieved savings will be reduced from £1.5 million to £1.25 million

•a transitional 'fixed protection' regime will be introduced for those who believe they may be affected by the reduction in the lifetime allowance

Legislation will be introduced in Finance Bill 2013 to make these changes and will be published in draft on 11 December 2012.

Details of the changes are available from HMRC.

Anti Avoidance and Evasion

The Chancellor confirmed an earlier announcement that HMRC will receive £77m in funding to tackle tax evasion. The Government’s commitment to introducing a GAAR in 2013 was also reinforced and the Government’s intention to work with Germany and France to strengthen international standards for corporate tax regimes was also announced.

Five further measures have been announced in a Written Ministerial Statement. They have effect from today, 5 December 2012. These cover:

(1)Foreign bank levies - which are not allowable deductions for Income Tax or Corporation Tax purposes.

(2)Tax mismatch scheme - which reduce Corporation Tax liability through asymmetric tax treatment of loans or derivatives.

(3)Property return swaps - which convert capital losses into income losses.

(4)Manufactured payments - where schemes involve stock lending arrangements.

(5)Payments of patent royalties - relief for non trade payments to be abolished.

Details on the package of new rules and extra investment in HMRC are available from HMRC.

Other Taxes - Fuel Duty, Air Passenger Duty (APD), Inheritance Tax (IHT)

•The 3.02 pence per litre fuel duty increase that was due to take effect on 1 January 2013 will be cancelled and the increase that was planned for 1 April 2013 will be deferred until 1 September 2013.

•The IHT nil-rate band was frozen at Budget 2010 at its current level of £325,000 until April 2015. For 2015-16 the band will be increased by 1% rounded up to £329,000.

•APD rates will increase by the Retail Price Index increase for September 2012 from 1 April 2013.

The Autumn Statement is available in full from HM Treasury.

The "cuts" again!

Cuts? What cuts?

 

In June 2010 The Office for Budget Responsibility set out its target borrowings for the Coalition government. Under that plan, in 2012-13 borrowing was supposed to be £89 billion. Borrowing in 2011-12 was £121.4 billion and the latest figures (if they can be relied on) indicate that 2012-13 borrowings will be £130 billion.

 

Of course, the Government’s figures are not necessarily that accurate – they originally said quarter 2 GDP growth was –0.7% but in the end it was nearly 50% wrong and it turned out to be –0.4%. In August, official statisticians told us that July was a budget deficit. Now they are telling us they didn’t spend more than they received, in fact July was a surplus month with receipts bigger than spending!

 

However, assuming that borrowing this year is £130 billion then it is nowhere near the original target. So what is the problem?

 

Official figures last month clearly point to where the problem is. Despite the so-called cuts, welfare spending was 7.7% up on a year ago and nearly 15% over three years. With unemployment just under 2.5 million, it almost at the same level as three years ago, it is not the “recession” that is causing the increasing spending.

 

It is a combination of Gordon Brown’s lavish tax credit system and the fact that benefits are now index-linked.

 

Despite the howls of protests about “the cuts” the reality is that the Coalition government have failed miserably in getting the burgeoning welfare budget under control.

 

Gordon Brown fails again!

Oh dear! Things have just got worse for Gordon Brown, possibly Britain’s worst ever Chancellor. 

 

On taking office, he raided our pensions to pay for his lavish spending plans and in the process consigned millions of people to poverty when they retire. He followed that up by selling our gold reserves and buying now nearly worthless Euros instead.

 

He then invented the tax credit system that saw generous cash handouts to people earning up to £60000 (with average earnings only £22000 a year, it was doomed to need vast borrowings to fund it). Needless to say, spending on this and other generous benefits saw spending balloon forcing Gordon brown to have to borrow more money than we had in the previous 300 years put together to pay for it.

 

Not content with burdening our children’s children with the gigantic debt pile, Gordon Brown then put in place a “soft touch” regime to regulate our banks. As part of that, he and Ed Balls announced in May 2007 the creation of taxpayer funded The International Centre for Financial Management. It was supposed to promote Brown’s soft touch “principles based” approach to financial regulation. Four months later, Northern Rock collapsed, making a mockery of the principles based system of regulation.

 

Now City of London police are investigating the alleged serious embezzlement of funds at The International Centre for Financial Management! A member of its management has been suspended and the centre is, according to press reports, going to have to close if the money is missing.

 

Savings

Savings hurt - this is why your savings are going down!

Aid to India

Aid to India

Quite why were giving aid to one of the world's largest and fastest growing economies was a puzzle to me

French tax cuts

A €20bn (£16bn) package of tax breaks has been announced by French Prime Minister Jean-Marc Ayrault in an attempt to reverse the country’s spiralling fortunes and boost its competitiveness.

The move will be in the guise of tax credit and is set to be financed by €10bn in spending cuts and a €10bn increase in VAT from 19.6% to 20% and environmental taxes. Restaurant taxes will also rise by 3%.

Ayrault rejected a recommendation to cut employer wage taxes made in a report by French industrialist Louis Gallois, the former head of the European aerospace and defence group EADS, which called for dramatic action be taken to boost its flagging economy.

President François Hollande’s seven month-old government is afflicted by a rising unemployment rate of over 10% and a record trade deficit of €70bn last year.

The country’s woeful economic performance is in stark contrast to EU powerhouse, Germany, which enjoyed a 22% upswing in intra-EU exports in 2011while France recorded 9.3%.

The ongoing frailty of France's economic health has seen over two million people lose their jobs within the past three decades, the report revealed.

On Monday, the International Monetary Fund drew attention to France's "lack of competitiveness" as "a major stumbling block to its economy recovery.

In August, the French finance ministry published its second 2012 supplementary finance bill (PLFR) in a bid to offset the spiralling budget deficit and increase the tax take by around €7.2bn (£5.7bn) this year.

The ministry said that the forecast for economic growth has been revised downwards to 0.3%, noting that given the economic slowdown, tax revenues have also been revised downwards by €7.1bn.

Government accounts

The government’s latest accounts have been published but show significant weaknesses with quality and consistency of data provided by the health and education sectors, while organisations such as Network Rail have been totally excluded from the accounts even though accounting standards require their inclusion.

The comptroller and head of the National Audit Office (NAO), Amyas Morse, said that the exclusion of bodies such as Network Rail – with gross assets of £43.3bn and gross liabilities of £35.6bn; publicly-owned banks which had gross assets of £2,575.3bn and gross liabilities of £2,446.9bn; and other bodies had estimated gross assets of £36.1bn and estimated gross liabilities of £27.8bn – would have a significant impact on the government’s statement of financial position.

Morse also raised concerns with the length of time it took to produce the accounts – the latest accounts were completed 19 months after the end of the financial year to which they relate.

The NAO is also concerned over the completeness and valuation of school assets.

Morse said in his report that the Treasury and the Department for Education had not arranged for the academies’ returns to be audited. He added that the Department for Education did not provide him with sufficient assurance that the data included in the accounts were accurate and complete.

‘I have reviewed the process for consolidating these returns but was unable to obtain any assurance over the accuracy and completeness of this data,’ he said.

The impact of this, he said was that £2.2bn of income, £1.9bn of expenditure, assets of £3.5bn and liabilities of £0.3bn included in the accounts are unaudited; there is an understatement of gross assets in these accounts estimated to be £2.6bn arising from the omission of 195 academies; and a review of returns submitted by academies estimated a further understatement of assets of approximately £1.4bn, where insufficient value has been attributed to the assets.

The accounts have shown that government has significantly reduced its annual deficit from £163bn to £94bn over 2010/2011 but its overall net liability has remained at some £1.2 trillion due to a reduction in the public sector pension liability being offset by a rise in government borrowing.

Accounting standards used by local government have now also been brought into line with those used by central government, with comparative data added.

Strong USA growth

The US economy grew more than expected in the three months to September, official figures showed.

The world's largest economy expanded at an annualised rate of 2% in the third quarter, the Commerce Department said.

The jump was partly due to a large increase in government spending.

The figures are the one of the last pieces of important economic data before the US presidential election between Barack Obama and his challenger Mitt Romney on 6 November.

Federal government expenditures and gross investment increased 9.6% compared with the previous quarter, while national defence spending rose by 13%. The Commerce Department said there was a jump in personal consumption as well.

A drought in the US, which was the worst for 50 years, cut farm output and took 0.4 percentage points off the GDP figures, the Commerce Department said.

With more than 20 million Americans unemployed and a huge public deficit, the economy has become one of the central issues of the campaign.

The US has now been growing for more than three years, since June 2009.

"Growth came in a little higher than we had feared, largely because of the big jump in federal spending," said Paul Ashworth, chief US economist at Capital Economics.

"But the economy is still not growing rapidly enough to create sufficient jobs to reduce the unemployment rate."
Economic fight
Mr Romney has repeatedly challenged President Obama's record, saying ''we have not made the progress we need to make''.

"If the president were re-elected, we'd go to almost $20 trillion of national debt. This puts us on a road to Greece," Mr Romney said during the second presidential debate.

Mr Obama replied that his opponent did not have a five-point plan to fix the economy, but ''a one-point plan''.

Last month, the US unemployment rate fell to 7.8%, down from 8.1%, its lowest since January 2009 when Mr Obama's term in office began.

To help get the US economy back on track, the US Federal Reserve in September restarted its policy of pumping money into the economy via quantitative easing. The Fed pledged to buy $40bn (£25bn) of mortgage debt a month, with the aim of reducing long-term borrowing costs for firms and households.

"Growth was fairly resilient," said Christopher Vecchio, a currency analyst at DailyFX, but "nevertheless, this is still not the stable recovery the Federal Reserve is looking for".

Recent housing data has also shown some encouraging signs of recovery, analysts say.

Sales of existing homes and housing construction have picked up and the main home price index has risen consecutively for three months.

House prices have rebounded in some areas, while mortgage rates are expected to stay at record lows because of low interest rates.

The Fed has vowed to keep rates at the current levels of close to zero until 2015.

The economy grew by 1.3% in the previous quarter. The US states its growth in annualised terms, meaning that its quarterly growth rate is extrapolated as if it was growing at that pace for the whole year.

Q3 GDP Figures

http://www.bbc.co.uk/news/business-20086872

Are these numbers really right? First the ONS tell us that Q2 was negative growth of 0.7%, putting us in double dip, then they say it say minus 0.5%, then minus 0.4% - almost 50% wrong compared to their original estimate! At an annualised r...

ate, 0.7% drop would have meant that the economy was contracting at the same rate as in 2008 - a total slump! Now they are saying that the economy grew by 1% in Q3 - which annualised is a complete boom! How on earth did the economy go from a slump in Q2 to a boom in Q3 when nothing changed to stimulate the economy - no cuts in interest rates, no fiscal stimulus etc! Ever thought that maybe your numbers are not right boys?

Double dip

Was there ever really a double dip?
Recent figures show that in the past two years the number of peoplen in employment has risen by 462,000 to a new record of 29.59 million.