Tag: tax

MERVYN’S PANICKING!

THE ECONOMY

With inflation heading for 3%, the Governor of the Bank of England wants £25bn more quantitative easing. What are we to make of Sir Mervyn King’s views revealed by the publication of the latest Monetary Policy Committee (MPC) minutes?

 

He may have been influenced by Mark Carney’s indication last week that inflation targeting may be eased when he becomes Governor in July, or he may have run out of ideas to help our flat lining economy. In any event he was overruled by a majority of the members of the MPC.

 

Having been cheered up midweek by a speech by Sir Howard Bernstein, Chief Executive of Manchester Council at a Downtown event full of ideas about the city’s drive for foreign investment; reading the MPC deliberations was a reminder that we are in a dark forest economically with few chinks of light.

 

The Budget is less than a month away but there are low expectations that the Chancellor can pull any new rabbits out of the hat. The headwear is empty. Quantitative Easing, low interest rates and infrastructure spend have all been tried but the headwinds blow strongly.

 

There are indications that the mortgage market is easing and the infrastructure investment has long lead times but the recession continues to take its toll with Axminster carpets following HMV, Jessops and Blockbuster off our high streets. George Osborne was also a billion short on what he expected from the 4G sale.

 

Last December the Office for Budgetary Responsibility had factored in £3.5bn from the sale. It was an important factor in the Chancellor being able to claim that the deficit was falling. Some economists now claim the government overshoot this financial year will be £10bn.

 

Internationally there is talk of currency wars breaking out as countries try to boost exports. Japan has certainly embarked on this course. The pound is weak which partly explains the 10p hike in a litre of petrol since Christmas. By the way a friend of mine was asking the other day where are the fuel protests that we saw in 2000? A good question I thought.

 

COUNCIL TAX

Against this background local councils across the North are fixing their budgets for the forthcoming year. In our urban areas most people will face a rise in council tax. The politicians will argue they have no choice considering the cuts in government grant. Cynics will point to the fact that the metropolitan councils from Leeds to Liverpool have no elections this year. The Environment Secretary Eric Pickles is threatening to penalise councils like Manchester who have found a way round the need for a referendum if council tax rises by more than 2%.

 

EASTLEIGH BY-ELECTION

Meanwhile the voters of Eastleigh have to choose between the two parties of government as they go to the polls next week. We can judge the seriousness of Labour’s challenge by the refusal of their candidate John O’Farrell to live in the constituency if he was elected.

 

So it’s between the incumbent Liberal Democrats who have a dull but worthy candidate and an off message Tory. I don’t expect the “Chris Huhne” effect to be too damaging and I’d bet on the Lib Dems getting some good news at last.

IT’S NOT GEORGE, IT’S BALLS !

In 1994 in a brilliant piece of conference oratory,Tory Deputy PM Michael Heseltine was describing a complicated speech on economics that had been made by Gordon Brown. It turned out it had been written by his researcher Ed Balls. So Hezza was able to tell the conference the speech wasn’t Brown’s it was Balls.

 

The Autumn Statement was meant to see George Osborne discredited for having to come to the Commons confessing he’s missed his targets for growth, borrowing and debt reduction. He had to do all those things and the country remains in a dire state. But politics is often about mood and presentation.

 

With a string of announcements to help business, scrapping petrol price increases and measures on tax avoidance, Osborne gave a strong performance in a dire situation. Ed Balls meanwhile was left floundering. An uncertain performance in the Commons will be quickly forgotten. It will be less easy for the Shadow Chancellor and his party to respond to the measures proposed.

 

How for instance will Labour vote on the tiny 1% increase in benefits? Will Labour re-examine its critic of the Coalition that it is cutting too far and too fast whilst there is still political mileage in the claim that Labour got us into this mess? The Private Finance Initiative (PFI) is a case in point. The refurbishment of our schools and hospitals was long overdue but it was an expensive way to do it and the Chancellor’s PFI Mark 2 should ensure that the public purse benefits a bit more in the future.

 

There were a number of measures to help the economy in the North. We are shortly to see the plans for extending high speed rail to Manchester and Leeds. Salford is to get ultra fast broadband. Local Enterprise Partnerships are at last going to get some real money to play with. From 2015 they will be able to bid for a single pot of money covering local transport,housing and skills. More money is being poured into the Regional Growth Fund although it has been weakened by resignations and complaints of slow delivery. The new business bank is to have a billion pounds set aside for SME’s.

 

Finally back to the politics of the Autumn Statement. It is quite possible the UK will lose its AAA rating soon but leading economic commentators like Gillian Tett of the Financial Times and Robert Choate of the Office for Budget Responsibility seem relaxed about that. They claim investors have already factored the downgrade into their calculations. They also argue that most countries are struggling at the moment and the UK won’t be that disadvantaged.

 

Nevertheless the loss of our AAA status would be a blow to the Chancellor who must be hoping his package doesn’t unravel in the run up to Christmas. Memories of the aftermath of the Budget with rows over pasty tax and charities were clearly on the mind of key Coalition Ministers in the run up to the Autumn Statement. The senior Lib Dem Ministers involved in this process, leader Nick Clegg and Chief Secretary Danny Alexander are determined to see the economic strategy through and are working effectively with their Tory counterparts.

 

That reassures the markets, but its a very different picture up North. I was talking last week to a senior ex Lib Dem councillor who gained office when the Lib Dems first started to make an impact on northern councils. He has seen all that swept away. His bitterness was tangible. The price for the Lib Dems signing up to this budget reduction strategy is high.

 

May I wish you as happy a Christmas as austerity will allow.

NORTHERN CHALLENGE FOR THE CHANCELLOR

THE IPPR REPORT

“Northern prosperity is national prosperity”, that’s the title of an excellent document published by the Institute For Public Policy Research (IPPR North) ahead of next week’s Autumn Statement. If the Chancellor implements its recommendations, the North can play its rightful part in pulling the country out of the slump.

 

Addressing the gross imbalance in the UK economy between the North and the South East, the report claims halving that output gap would increase national income by £41bn.

 

The economic proposals include a British Investment Bank with £40bn capitalisation, but with regional allocations, a plan for a new body to take over the Northern Rail Franchise and devolution of welfare to work funding to local councils.

 

On the constitutional front IPPR (North) favours metro mayors for West Yorkshire,Greater Manchester and Merseyside. It also favours two bodies to encompass the whole North of England, an Innovation Council and an annual convention of the 11 Northern Local Enterprise Partnerships.

 

This concept of bringing the whole of the North together chimes with a report published a year ago by the Smith Institute.

 

The abolition of the Regional Development Agencies was an act of supreme folly by the incoming government in 2010. Ministers seem to acknowledge that now as they seek to beef up the Local Enterprise Partnerships. But there is probably no going back to the pattern of Yorkshire Forward, One North East and England’s North West. IPPR (North) are right that we need to bring together the collective strength of the whole of the North.

 

My only regret is that the report has a democratic deficit. The people must be given a chance to elect a Council of the North so they can have a say in what is being done in their name. The presence of indirectly elected councillors would not be enough.

 

The report also highlights the importance of plans for the Liverpool Superport and Atlantic Gateway. Amidst all the gloom there are teams of people across the North West trying to cash in on the government’s commitment to infrastructure as a way out of the economic downturn. One of the biggest projects is Superport and Atlantic Gateway.

 

It has three components. A deep water terminal in Liverpool to take the larger ships that are now coming through the widened Panama Canal. The multi-modal Stobarts freight depot at Widnes and the new bridge across the Mersey linking Runcorn and Widnes.

 

Beyond that Peel Holdings have plans for port facilities all the way up the Manchester Ship Canal and with the Northern Hub rail improvements in Manchester expected to upgrade rail movements across to Leeds and beyond, we have a framework on which jobs and prosperity can be hung.

 

To be fair The Chancellor has pump primed some of these projects with government cash. Now we have to hope that the boost of infrastructure development isn’t overwhelmed by continued pessimism amongst bankers, investors and the public at large.

THE AUTUMN STATEMENT

This is the time for hard pounding by Chancellor George Osborne when he makes his autumn statement next Wednesday.

 

The 2010 optimism that the economy would be on the turn by now has disappeared as the Bank of England cuts its growth forecast to 1%. The Bank is also predicting that inflation won’t fall to the government’s target of 2% until the middle of next year. That forecast should ensure that Mr Osborne cancels the planned increase in fuel tax at least.

 

The UK’s economic prospects have deteriorated since the Budget. This is most starkly illustrated in the fall in tax revenues the Treasury is receiving and also the higher welfare payments that are being paid out.

 

This is where Labour is on the attack accusing the Chancellor of digging himself into a hole that is counterproductive to getting the economy moving again. There is still some political capital in the Tories reminding people that ex Labour Minister Liam Byrne left office saying there was no money left; but not much.

 

The Tories and Lib Dems have been in charge of the economy for two and a half years now and the measures in this autumn statement will cast a long shadow towards the next election.

 

We are used to local councils across the North from Leeds to Liverpool crying foul when cuts are made in Town Hall budgets. But this year they really do seem to have a case. Having already made drastic savings, demands for further economies will bite into front line services. In Wirral for instance leaks suggest the entire Town Hall staff may be asked to reapply for their jobs.

 

The Institute For Fiscal Studies is predicting that austerity could last until 2018 and if this Autumn Statement is going to be a tough one, what can we expect? There’s speculation that the maximum tax-free annual pension contribution will be cut from £50,000 to £40,000 and there could be further increases in stamp duty on the sale of properties worth over £1m. However there is a real battle going on about the possible introduction of new council tax bands on high value houses. The Daily Mail claimed recently that Osborne and Lib Dem leader Nick Clegg favour the move but the Prime Minister is resisting.

 

The Lib Dems are desperate that if they are to be associated with an austerity statement, they will be able nonetheless to show some evidence of their “fairness” agenda. This may come with an announcement that the income tax personal allowance will be raised to £10,000 by April 2015. That’s a month before the General Election when the voters will get their chance to decide if all this economic pain has been worth it.

 

ANNE McCARTNEY: A WARRIOR FOR DEMOCRACY

At the Livercool Awards I had the pleasure to meet Anne McCartney. She works for Price Waterhouse Coopers in Shipley near Leeds. Anne is a keen supporter of the new Downtown Leeds project.

 

On polling day for the West Yorkshire Police and Crime Commissioner elections she was staffing a temporary polling station in a rough area of Leeds. A generator provided heat and power so that the few could vote in the election. However the generator expired, plunging voters and polling staff into darkness. The Town Hall was consulted by Anne but didn’t know what to do to keep the wheels of democracy turning.

 

Anne did. She set up a temporary polling station in her car until power was restored. That’s democracy in action. Well done Anne

IT’S A LONG GENERAL ELECTION CAMPAIGN

COALITION SPLITTING

I thought the process of the Tories and Lib Dems going their separate ways ahead of the 2015 General Election would start about a year out. Now it looks as if the Coalition Government is going to grind to a halt much sooner as the Tories and Lib Dems bid for votes.

David Cameron has risked this happening with the launch of his idea to scrap housing benefit for under 25s. He made no secret of this being a true Tory policy free from the coalition agreement that so irritates his right wing backbenchers. Its effect is to begin a process that can only weaken the forward movement of the government.

Apart from the fact that most of the key legislation was rammed into the first two years of the parliament, Tory and Lib Dem MPs will now be focused on shaping up for the next election rather than making the concept of coalition government work.

It is true that Cameron has been true to his word to introduce a bill for Lords reform this week. But few Tories have any commitment to it, most are indifferent or are actively plotting to defeat it. They don’t want the measure and they don’t want to put any feathers in the cap of the Lib Dems. So the next election is underway.

TIDE TURNING ON THE OLD?

By and large the old vote and youngsters don’t. Therefore politicians meddle with elderly people’s allowances with the greatest care. Tuition fees of £9000 a year fine but free TV licences and winter fuel allowances for the grey brigade….untouchable, until now.

Although the government is committed to the concessions in this parliament, there are indications that after 2015 the better off elderly are going to start feeing the pain of the younger generation.

And so we should! I was born under the National Health Service in 1948. I did not do national service or fight in a war. University education was free. There were plenty of jobs afterwards and, for some, good pensions to retire on.

Compare that to the stressed generation of youngsters now. Big debts, no jobs and the prospect of paying for our profligate public spending throughout their lives.

The Chancellor made the first move when he chopped the age related tax relief I was expecting next year, but this could only be the start of a seismic move by politicians to be more even handed between the generations.

It will be fascinating to see how the electorate reacts. Will young people start to vote in large numbers to influence politicians or will the 1940s baby boomers mobilise to insist that the good times must continue to roll for them?

NATION OR PREMIER LEAGUE?

There won’t be a long inquest into our latest failure to land the European Nations Cup. (I prefer the old titles, League Cup, European Cup, and Division 1).

We have made our choice. We are happy to pay Sky high subscriptions to watch the world’s best footballers in the First Division (ok, Premier League).

Even more foreign stars will be attracted to our shores with the latest extraordinary hike in television rights. Even fewer talented English players will get a chance to perform at the highest club level, so there will be even fewer able to pass and hold the ball in international tournaments.

The new FA youth centre will help a bit, but as my late father said to me as we watched England winning in 1966, “It could be a long time before you see this happen again.”