The Pre-Budget Report (PBR) didn’t really say a lot and did not change the economic landscape at all. The two major stories will be National Insurance (NI) increasing by 1% and the tax on banks who choose to pay bonuses over £25k to employees before April 2010. My take on the two are:
- NI tax increase is hardly helping hardworking individuals, The average salary in the UK is £24k, and according to the PBR, those earning under £20k will not pay more NI, so this is hardly fair.
- The tax on bank bonuses is actually quite clever as it is on the banks who must choose to either pay out bonuses, and hence tax to the Treasury or keep more of their profit to rebuild balance sheets. Also if bonuses are deferred to next year the new higher rate of tax (50% on those earning £150k+) will come in so the Treasury will get increased taxes then too.
It was a shame that Labour chose not to reveal more about how they would look to balance the books in the long term. The Lib Dems have already stated they would scrap spending on Trident, maximum public sector pay increases of £400, tax on banks profits (as they are artificially making high profits from implicit government guarantees and benign cost of money) as well as scrap the Regional Development Agency.
The Tories have done a lot of attacking on the UK’s fiscal deficit but have not spelt out what they would cut. Although more importantly for me is their persistence calls for cuts to be made NOW even though the timing of reduction in fiscal support for the economy is critical, too soon and we lurch back into recession or a Japan style growth (i.e. none) for 15 years or more, too late and we will have a massive debt problem.
Personally it is too soon to cut Government spending and indeed none of the other G7 economies are proposing cuts in fiscal stimulus in 2010/11 unlike the Tories.