Pre-Budget Report – highly anticipated but didn’t really say a lot…

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:

  1. 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.
  2. 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.

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A fairer tax system

The Lib Dems today presented the tax system we’ll be taking to the electorate at the next General Election. 2 key points I want to make:

  1. Increasing the income tax threshold to £10k is what this country needs, it amounts to a £700 tax cut to most people and will take 4 million people, many pensioners, out of tax. This will encourage more people into work and alleviate the poverty trap. Digby Jones, of Bromsgrove and CBI fame, even applauded the policy on Question Time and attacked the other mainstream parties for not doing more to help those looking to work.
  2. Much has been made of the mansion tax, and I must admit I didn’t initially agree with it as it was an annual tax based on assets and not on the ability of the individual to pay (why I like a local income tax). However, it is important to point out that it is a temporary tax which can be implemented quickly whilst the system of local income tax is being introduced to replace the current council tax. As it’s temporary it gets my vote.

Our parliamentary candidates should at least pay tax in the UK

It was revealed today in the Sunday Times that Zac Goldsmith, prospective Tory parliamentary candidate for Richmond, has non-domicile tax status, meaning he’s not paying huge UK income tax on his £200m fortune.

He is planning to change his tax status in 2010, which is conveniently when the next General Election will be. I wonder if he’d change his situation if he wasn’t running for parliament???

It’s nice to know as the country suffers one of the worst recessions in modern history with tax rises and spending cuts on the horizon, a member of the political and social elite has been looking after his own situation. As George Osborne would say “We’re all in this together”…