Reuters Pre-Budget Live Blog
An online debate from Reuters UK
- This live debate held during the UK Pre-Budget Report began officially at noon GMT on Wednesday, Dec. 9, 2009. It is now closed. Thank you to our contributors: Anthony J. Evans, assistant professor, ESCP Europe Business School; Nick James, Fresh Business Thinking; Thomas Story, tax director, BDO; Dominic Swords, business economist, Henley Business School; Joe White, Gandi; Julia Whittle, principal and head of international Punter Southall; Danny Wootton, UK Innovation Director at Logica.
- Good morning everyone. The purpose of this blog is to respond to the details of the pre budget report in real time. Over the last few days speculation has been rife as to what the Chancellor will say, and anticipation across various news agencies is growing by the minute. At the outset, I want to suggest that regardless of what is announced this entire process is damaging to the economy. One of the main reasons the Wall Street crash turned into the Great Depression was the widespread and arbitrary interventions by government that changed the rules of the game. Every time Alistair Darling prepares to make an announcement, businesses are forced to invest time and money in second-guessing what will be done. The recovery will come when their attention is turned to building and growing their businesses. Today we are witnessing a distraction to that.
- Here is the Reuters "Scenarios" which sets out some of the key options for the pre-budget report today bit.ly
- It is certainly a distraction if too much attention is paid to it. And I for one feel that we have triggered some self fulfilling prophesies during this recession expecting a worsening situation and then convincing ourselves to behave in a way that makes it come to pass. Still the numbers are at the very least important to provide confidence in the markets of a situation under control
- As Greg Mankiw said: "it is best to be suspicious of any policy whose benefits are supposed to work through the amorphous channel of "confidence."” (!)
- What's at stake for financial markets in Pre-Budget report bit.ly
- Is this Labour's last Pre Budget Report? And does that have any significance?
- At the risk of looking foolish in 90 minutes time, here are BDO's predictions for the PBR. www.bdo.uk.com
- @Thomas Story I remember the first time I heard a serious forecast of the budget deficit that exceeded £200bn (back in February), and it was widely mocked at the time. Could well turn out to be an under estimate…
- I hope This is the last Pre Budget Report for labour. labour has lost its way. Time For a Change.
- The context of the PBR is critical. The Budget anounced measures to increase a variety of taxes starting next year to begin the process of fiscall tightening. There was little detail on how cuts would be made in spending from 2014. Today, the size of that fiscal tightening has grown. Of interest today is the Chancellor's assessment of that worsening situation, and how he proposes to bridge this additional funding gap through a mix of taxation and spending cuts. Will he give 'clarity' on the target and details of the cuts? I suspect not, deferring that decision until later.
- While we're waiting for the Chancellor to speak, here is a challenge to all political parties to try to conduct an intelligent and 'grown-up' debate about the harsh choices ahead. www.bdo.uk.com
- Much of the speculation ahead of the PBR has focused upon taxing bank bonuses, capital gains tax rates and inheritance tax. Whilst these are highly politically sensitive, none of these measures are able to make a substantial dent in the £175 billion deficit. For example-
A 7% increase in the rate of CGT from 18% to 25% would raise about £1 billion
A 10% increase in the rate of IHT from 40% to 50% would raise less than £0.5 billion
If tax rises, together with public spending cuts, are to play a significant role in raising the larger sums that will be needed to meet the Government's commitment to halve the deficit, there will need to be raises in the key taxes that collect the largest amounts.
Possible tax rises include:-
An increase in the basic rate of income tax of 1% would raise about £5 billion
An increase in the higher rate of income tax of 1% would raise about £1.5 billion
An increase in employer's National Insurance of 1% would raise about £5.5 billion
An increase in employee's main rate National Insurance of 1% would raise about £4.5 billion
An increase in the standard rate of VAT of 1% would raise about £5.0 billion
Although we may not see changes to these key taxes in the PBR, unfortunately, tax rises of this magnitude may be unavoidable after the election, irrespective of the party in power.
Note - figures from November 2008, HM Treasury paper "Tax ready reckoner and tax reliefs". The document estimated the direct effects of changes in tax rates. Figures above based on 2011/12 projections.
- Is the PBR going to do anything for small-to-medium size businesses?
Small firms are going to need as much support as they can get - having tightened their belts over the last 12 months when the recovery kicks in proper how is growth going to be funded? www.freshbusinessthinking.com
- The tone and content of the PBR is going to be key in setting the tone of the governments plans to helping businesses and the country in general on the road to economic recovery. I really hope that it is recognised that supporting innovation in businesses of all sizes is linked to this recovery, plus recognisition that innovation is not just about research and development, but about collaborating together to realise the benefits of innovative ideas. The other aspect is that it isn't just about money, but how that money is used and the policies associated with it
- What the PBR could do for small businesses - which account for a large % of our growth and employment - is take specific measures to ease the burden of the recession on them and set them ready for growth. Selective tax cuts, improvements in VAT processes and encouragement for innovation are just a few. While most attention is on fixing the deficit, if we can improve our ability to grow, the deficit issue becomes smaller.
- Any short term wealth tax on high earners as merely a knee-jerk reaction would be very misguided
- @dominicswords The problem with “helping” small businesses is that many policies can increase complexity and reward form-fillers and grant-gatherers instead of those who just knuckle down and build their company. Reduce NI contributions, make it easier to hire (and fire) employees, and stop penalising growth with arbitrary barriers. A stable environment is worth more than any specific policy
- Darling says he's confident the economy will start growing by the end of 2009.
- Darling confirms VAT to return to 17.5 % on Jan. 1, 2010
- Darling says he will defer the increase in corporation tax for smaller companies
- Some small but helpful announcements especially deferring the small business corporate tax increase. Reduces cash pressures in a time when cash flow is key to staying afloat for many businesses
- As an aside, employees tend to bear the largest burden (around 70% in the US) of corporation tax. thefilter.blogs.com
- Highlights of Darling's pre-budget report so far bit.ly
- Some interesting and helpful things to help smaller businesses survive, but nothing at the moment to stimulate growth.. lets see what's still to come
- Darling says unemployment has increased much less than expected
- Darling confident of growth by turn of year
- As suspected it doesnt look as though there are any big & bold measures for small businesses - the problem is that businesses dont get a vote!
- Encouragement for older people staying in work is good but alongside this a change to the age discrimination regulations to permit flexible requirement is essential
- He's cut bingo duty! Fantastic - problems solved...
- Darling expects UK GDP to fall 4.75 percent in 2009 versus his earlier 3.25 to 3.75 percent estimate
- Can anyone explain why bother cutting Bingo duty?
- @freshnick The deferement of the proposed 1% increase in corporation tax for small businesses is welcome but is really very small beer
- Encouraging older people to stay in work will help with knowledge retention in our businesses, which helps with lessons learned for younger employees when trying to identify new opportunities or innovations
- Darling sees GDP growing 1 to 1.5 percent in 2010, unchanged from his earlier estimate
- So far no announcements on reducing expenditure so no early reduction in budget deficit appears likely - unless major tax rises
- The main recast of his forecasts - from - 3.5% this year to -4.75% - adds a further £10bn or so to the deficit
- @Thomas Story Darling Is Confident in his dreams..
- And some of the giveaways he has just announced were new and so un-funded so far. where does that come from?
- Darling expects GDP to grow 3.5 percent in 2011 and 2012
- Are these deficit forecasts any more credible than those coming from the private sector?
- Chancellor acknowledges corporation tax & stamp duties have been decimated but says cost of bank bail outs is less than expected
- £500 million growth fund - why only £500 million? Good that EFG is continuing - perhaps it will give banks chance to understand it
- Government to extend guarantee for small business loans for another 12 months
- SME credit is a very important factor here. Some SMEs I know have had credit removed during the last 12 months at precisely the wrong time. Turning these funds into available credit that SMEs feel they can actually get is a real challenge as there seems to be a disjoint between the top line figures and the experience of trying to get funds from banks.
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