Bank of England Governor slams government borrowing!

The Governor of the Bank of England, Mervin King said today that the governments plans to reduce the governments deficit were not ambitious enough.

In other words, spend less or borrow more. Possibly both.

Considering that Labour's published plans, based on possibly optimistic growth forecasts are not fiscally tight enough. The problem is that the governments plans on spending are harsher than Thatchers as it is.

Meanwhile the OECD thinks we are going to have a deeper recession than they previously forecast and much worse than the governments own assumptions.

In short, there are grim times ahead.

The BBC has this.

Cutting Public Spending by £90 billion!

If UK PLC popped along to see its bank manager, around about now, and asked to extend its overdraft by £606 billion over 5 years plus no date for the start of repayments he would say No! In fact, were it not for the bank of England printing money to buy gilts back, there is quite a high likelihood of a gilt strike. That is where the normal gilt buyers refuse to buy, leaving the government high and dry.

The bank manager would be looking for cuts in expenditure of at least £50 billion. The problem is that would be drastic. With that in mind I read the following email from A Ferrand Stobart & Associates:

Could someone please recognise that to economise in any service, public or private,one does not cut the service, one cuts out the current waste in providing that service which often actually improves the service

£15bn of economies are proposed in the Budget in the Public Services, about 2% of total expenditure, Reform says £30bn is possible 4%,. The Taxpayers Alliance has quoted £80bn, 10.5%, In 20 years of work in the field of operational improvements leading to cost reductions I have never found less that 12% and often up to 15% of benefits [cost reductions] achievable in the 12-18 months after revised system installations, £90 - £112bn. per annum in the Public Services possibly !! The Government/Chancellor are setting a very low target for economies which are quite certainly there to be had.

I have personally examined several Public Services in my time, and worked in a few of them. The most interesting reaction to what was called "analysis", establishing whether there was potential for improvement before offering to deal with it, was from a large department in constant touch with the public. [I shall not name names and it was some time back]. The problems, waste and frustrations at "shop floor" level were the same as at any other clerical operation that I had looked at. Plenty of opportunity for improvement, and I had an enthusiastic talk with a union shop steward on the possibilities !

But when I presented my findings to the top civil servant in charge, he was not pleased. He had wanted a report that his department was working well !! I do not think that he went "out on the floor " much.

If a way could be devised that the staff in a Public Service were rewarded by part of the cost of the waste they stopped, one might get somewhere. This has now been suggested by Conservatives ?

As Lord Digby Jones said recently "the work could be done by half the people", as the Book of Common Prayer says "There never was any thing by the wit of man so well devised or so sure established which hath not in the continuance of time become corrupted", and as Cicero said "Men do not realise that a great revenue may be had from economy"

Now, that is quite some savings, particularly from a relatively simple change. That said they could also scrap the stupid accounting rule that all budgets must be spent by year end or else you lose the balance and have it removed from your next years budget. With that sort of threat of punishment is it any surprise that budgets are pretty much always spent in full whether what it is spent on is worth while?

Worse "cuts" than Thatcher!

Just to give you an idea of how bad this budget is, and indeed how dire the public finances are, even the Guardian recognise that public spending restraint under this government will make Margaret Thatcher's look positively loose in fiscal policy.

There will be much blood on the carpet.

The Guardian has this, whilst Polly Toynbee has this. The amusing thing about Polly's deranged world view, is that she would rather tax the poor more so she can punish the rich, but that is another story!

What is the point of the 50p tax rate?

The short answer is that it is fantastic politics, and many opinion polls say it is popular.

The problem I have with it is that I want the rich to pay lots of tax, not tax the rich a lot. They may sound like the same thing but they are not.

I wrote this about how the 45% tax rate could cost money, but consider the actual evidence. When the rate of income taxes were eventually rationalised in 1988, to make the top rate 40%, the tax take from the rich went up, and when Denis Healey raised them the tax take went down.

So what you need to decide, is whether you want more cash from the rich (in which case rationalise the tax system to make it simpler, and reduce tax breaks) or whether you want to punish them and then get less cash so you have to tax everyone else more.

I know what I want.

George Osbourne´s reaction to the budget

The Budget 2009: My Comment.

Well, this government intends on borrowing eye watering amounts of money. In the net two years alone, if its laughably optimistic figures are to be believed, £381 billion. That is more than ALL OTHER GOVERNMENTS OF THIS COUNTRY HAVE BORROWED PUT TOGETHER!

As if that is not bad enough, the growth figures that future borrowing are based on are very optimistic. The net result is public debt will double.

Lefties the blogosphere over will be saying how this will ensure growth etc.

Rubbish. Firstly the numbers have no credibility in terms of showing how the public finances will be brought back to balance, and so drive up the cost of borrowing. Secondly borrowing is not free money, it is deferred taxation. As the tax rises and spending cuts to pay for it kick in, growth will be reduced.

The government think that growth will end up trending at 3.5%. This is a pipe dream. For a start the last 10 years of growth under Labour have been funded by both public and private debt. That can´t continue, secondly growth will be strangled because the government will have to pay back debt with higher taxes.

In short, we are in a very bad mess.

The BBC has this, with this report on David Cameron´s reaction , whilst Stephany Flanders has this.

45p tax rate will cost us money!

One of the Daily Telegraph´s leads this morning is that the 45% tax band will cost us money, in the sense that it will raise little or no extra tax and may cost some. It is based on an IFS study.

The treasury says this is bunkum, but even on their figures, it will actually only raise £600 million, leaving the budget short of £1 billion.

None of this is a surprise, as reducing the higher rate tax band to 40% actually raised the tax take.

The problem is of course, that beating the rich is popular, even if it is a really stupid thing to do.

Labour to slash spending by £15 billion!

Well, they call them efficiency savings, but were it the Conservatives proposing exactly the same thing, Labour would call them cuts.

How much they will affect front line services is difficult to say. You could cut public spending by the actually required £40 billion without affecting public services, the problem is that you would be reliant on those currently wasting money to cut the fat rather than the muscle, and if the could do that, they would be already.

However, there are many points to make about these much heralded ¨efficiency savings¨.

The first is this is a budget announcement, it has been leaked, ergo the chancellor should resign. That is what has happened pre New Labour.

The problem is that New Labour have so cheapened politics that they can get away with leaking budget sensitive information on a regular basis and the client media (yes, the same ones who have now turned on Damian McBride) just lap it up.

The second thing to say is: why have we been tipping £15 billion a year down the toilet? If we assume that this had been going on for 5 years, then had Labour acted sooner, we could have £75 billion more in the bank. Wow, that would come in handy right now.

The third thing to say is that the problem with these cuts is how they are delivered, and more importantly who sets the accounting rules. Government still works on the daft rule that if you do not spend all your budget this year then you lose the money, and you lose the same from next years budget. This is a bean counter rule, and what is more it is a stupid one. If you make reasonable budget assumptions, and beat them you are punished, not only this year but next.

Changing that one rule would dramatically help the public finances. For a start it would mean that there would be budget surpluses.

The last thing to say is that these public spending reductions will not go any where near far enough to reduce public debt. Remember that almost every pound borrowed by the state is a pound less available to the market for every one else.

The BBC has this.

10p tax rate abolition: Will it be Gordon Brown's last stand?

Many people commented on the abolition of the 10 tax rate when it wasn't announced by Gordon Brown last year, but was hidden in the budget detail.

Many, including me, thought it was a case of robbing the poor to pay the rich. We still do. The finance bill which contained it passed without much revolt at the time because Labour MP's either were too scared of their soon to be new Supreme Leader or because they thought they could get away with it.

Well, the truth is coming home to roost now. That cut is unpopular. No one bar the most sycophantic minister will appear to defend it. The wagons are circled around Downing Street. There will be no giving in apparently.

The only problem is that up to 75 Labour MP's have smelt the coffee, and will rebel when an amendment is voted on for this years finance bill.

We have to be clear on this. It would be a huge smack in the face of this government and Gordon Brown in particular to lose a vote on a finance bill. It is the sort of thing you expect to bring down governments.

So if Gordon loses, will he call a general election or try hand over to Ed Balls who will guarantee a Conservative victory of massive proportions?

Who knows. I would not want to be in Labour now though.

The BBC has this.

Bio Fuel duty set to rise by 20 per litre?

Alistair Darling gave the budget today, as expected.

His forecasts were somewhat more rosy than most independent commentators, and he did not do that much.

He did put up cigarettes, beer wine and spirits though, so the ferries are going to be busy.

The one thing he did not mention but is hidden away in the red book is the removal of the tax differential on bio fuels, worth something like 20p per litre, effective from 2010 where it will according to chapter 1, page 9, raise £550 million.

According to various other bits of the red book (See pages 7, 89, 95, and 107) this is all to encourage sustainable bio fuels, via the Renewable Transport Fuel Obligation or RTFO. Hooray I hear you say! (Or not as the case may be). However the problem is there is no corresponding account of how much the RTFO will cost the treasury.

In short the government is either taking £550 million by ditching the tax differential on bio fuels, a very un green measure, or it is not accounting for the RTFO in which case the budget has got yet more dodgy figures in it.

Good eh?

A difficult budget

Alistair Darling will present his first budget today. We already know it is going to be a bit of a dogs breakfast, because of the hurriedly announced measures in the pre budget report to "shoot the Tory fox" have been found out. They neither shoot the Conservative foxes, nor do they answer the questions the Conservative policies proffered.

However, it goes deeper.

This budget will be the most difficult since 1997, when Labour came to power. It will in fact be worse than that and probably be the worst since 1991.

Labour inherited an economy in good shape, with good prospects, but has squandered that.

I have no doubt there will be rabbits from the hat, but once on the plate and examined there will not be much meat there. Instead expect the chancellor to dodge the golden rules by moving the goal posts.

The Inheritance tax con update

Now I have had a look, here is the position:

New rules allow one half of a married couple, or civil partnership, to use any remaining nil band inheritance tax when they die.

As an example couple A and B have assets valued at £600,000. A dies and leaves their bit to B. This is not taxed at all, regardless of the value of the estate. Person B dies and then wants to leave it all to C, but the day before yesterday would have paid 40% of £300,000 or £120,000. Now if C lived with A and B this could put the family home in jeopardy.

Good?

Well, I will come to that.

What used to happen, is that a large slice of the people who would be affected by inheritance tax in this way set up what are called nil band trusts. So when A dies he leaves his half to C rather than B, but held in trust whilst B is still alive. B then dies and does the same (The wills are written to account for any order of death) so no inheritance tax is paid anyway.

So it is not the giveaway it looks.

Where it is good though is that firstly it does not rely on clever tax planning, and is also semi automatic. The long and the short of it is that people who have not done the clever tax planning don't get caught out, and to be fair why should they. However the extra allowance will still need to be claimed which will require some form of proof. there is also the question of what happens if A dies when the IHT limit is say £300,000 and B when it is £400,00? What is the combined IHT threshold? Is it £700,000 or £800,000? Also what if A used some of their allowance, say £100,000?

The other good thing is that Labour has finally had to recognise marriage in the tax system. That is a major ideological battleground surrendered without a second thought it seems.

Labour's Big Inheritance Tax Con!

It is not just me who has spotted this.

The "tax break" such as it is applies only to married couples or civil partnerships.

The situation is this, if you die without a will, the estate gets divied up, so much to the spouse, up to £125,000 if I remember correctly and then so much to children etc.

If the value of the estate is high, then there is an inheritance tax bill.

However, most people in this position take out a will, and if the intent is to pass it to the spouse that is tax free.

So there is no tax giveaway in any practical sense at all.

Fraser Nelson has this on the Spectator Coffee House Blog, linking to this more technical explanation by KPMG here.

Hat tip to ChrisD on politicalbetting.com for the link.

Inheritance taxes cut for couples?

Apparently one of the chancellors wheezes in the pre budget report to announce a doubling of the inheritance tax threshold for couples,

Does he mean married couples who pay no inheritance tax when one spouse dies?

Wow.

How generous!

Unless of course he means couples who are neither married or in a civil partnership.

The BBC has this.

Spin is dead! Long Live Spin!

I have to say I was impressed with Gordon "bottler" Brown's promise to end spin when he came to power, and more crucially to announce to parliament before the press.

I thought it was brave.

And a hostage to fortune...

Because I knew he just could not keep to it.

And so it has come to pass. We had the Iraq announcement last week roundly rebuffed and derided in the media as it was both during another party's conference, and not to parliament as he had explicitly promised.

Well today we expect the Pre Budget Report. Well, we do now, it was going to be next week, but an election was going to be announced just afterwards, so it had to be brought forward, but Brown bottled it so could have moved it back but I digress.

This will of course be announced to parliament first, except of course that several papers have had some form of advance notice.

We have this in the FT, this in the Guardian on closing loopholes for private equity, and surprise surprise, a tax on non doms! (No I am not surprised either) whilst the Telegraph had this on Saturday about what may be in the small print on council tax going up lots to cover yet more spending on the NHS, despite the fact that Labour seem to have wasted much of what they have spent already.

There was of course a time when a Chancellor would have to resign if this sort of detail of a budget or report were leaked before hand, but not apparently in the spin free era of spin free spinning New Labour.

Are we getting poorer?

One of the factors that governs how people vote at a general election is how the economy is doing. "It's the economy stupid" to borrow a cliche. Except that it isn't the economy as parroted in economic statistics that people notice, it is how they feel in their pockets that counts.

According to this report in the today's Telegraph disposable income is growing at its slowest since 1982, whilst the budget will make 5.3 million people worse off, mostly at the lower end of the pay spectrum. In fact disposable income dropped in the last quarter of 2006 dropped by 0.7%!

We then have to factor in things like higher fuel costs, mortgage costs and council tax .

Mind you the ever rising council tax is another issue! In Mid Sussex the district council now has to provide more services than it did in 1997, but on a £6 million budget has £100,000 more now in cash terms than it did in 1997. It makes it very hard to keep council tax at reasonable levels.

Hat tip to Witan on Politicalbetting.com.

The Budget's dead cat bounce

The big question in politics at the moment is how much of a poll bounce will Gordon Brown get when (or perhaps if) he becomes Prime Minister.

Some have it that he will get such a bounce that he will call a snap general election, others have it that he will be cautious. Some, (including me) have it that the bounce will be a dead cat bounce. As in none at all.

Interestingly enough we have some early poll results from the Times here, covering how well the budget went down.

Dead cat bounce? Frankly it seems to be squashed. There is no poll bounce at all.

Regardless of how much people will be better or worse off, only 11% of people think they will be better off whilst 26% think they will be worse off. What is shocking is that the people least affected either way are high wage earners whilst those on low incomes can actually be worse off!

Hat tip to "me" on politicalbetting.com for the Times poll details.

The Bremner take on the Budget!

Looks good to me, the Telegraph has this take on the budget by Rory Bremner.

So far it seems fairly accurate to me.

I am looking at the effects of the budget on people on tax credits, if you want to email me anonymously I will try to work out if you are better or worse off.

Hat tip to Witan on politicalbetting.com for the link to the Telegraph.

Budget bombshell, Defence spending has been cut!

Many thanks to Elliot who in my previous article provided this link to a very useful piece of work that he has done on the defence spending promise.

If you recall from the budget, Joseph Stalin Gordon Brown announced a £400 Million increase in defence spending. Well according to Elliot if you actually look at the numbers last years numbers for defence were £40.8 billion total, this years budget for defence was going to be £40.4 billion, so add the extra £400 million and you get last years numbers, a real terms decrease in spending of £800 million.

So let us get this straight. Our boys are fighting on two fronts in a major way and deployed over the world and yet they get this kick in the teeth.

Of course the Sun are just too daft to spot this cut or else they would be up in arms. However they just have this daft sycophantic editorial here.

The Budget, The devil is in the detail

The problem with Gordon Brown's last budget is that the devil is in the detail.

We already know that the 2p cut in the headline rate of income tax is offset by the removal of the 10p band, leaving single people who don't or can't claim Working tax Credit worse off until they earn over £18K per year.

We know that big business has had a cut in corporation tax, but small business has had a hike.

What I did not realise until I read this on Iain Dale's blog is that the 2p cut in income tax does not really apply to people in tax credits, because the claw back has gone up by 2p from 37p to 39p to compensate. Obviously those who get more tax credits may well be a bit better off, but this is clearly going to take some getting to the bottom of!

This is real smoke and mirrors stuff!