There’s loads of serious-minded UK Budget news & analysis on FT.com already, so…
Bad news for hairdressers in the UK Budget: VAT is to be applied to the rental of the chairs the customers sit in while they are asked whether they want something for the weekend. Makers of cable based transportation systems carrying fewer than 10 people must now pay VAT at 5% after the majesty of HM Treasury has once again been brought to bear on anomalies and loopholes in the VAT system. At 20%, of course, it’s worth straining every sinew to get your product taken out of its scope. And, goodness me, “some businesses have actively pushed at the boundaries to secure zero-rating or exemption for their products”.
The VATmen cannot mean the likes of Greggs, suppliers of fat’n’carbs to the masses on the move. The idea is to “clarify the treatment of catering to ensure that all hot takeaway food is taxed”. This could be quite a tough one. VATman: “This bun is warm.” Greggs baker: “It’s just come out of the oven.” VATman: “If you sell it before it’s reached ambient temperature, you’ll have to pay VAT – and keep proper records.” Read more
Over the weekend, we were treated to (even more) pre-announcements about what’s going to be in this year’s budget in the UK. FT Alphaville’s interest was piqued by Chancellor George Osborne’s proclamations that there would be an end to stamp duty land tax avoidance schemes. The levy is currently up to 5 per cent on the purchase of a residential property.
To begin with, how are people avoiding stamp duty? What sort of structuring is involved? Read more
Britain faces spending cuts “almost without historical or international precedent” over the next few years and, painful as the squeeze has been so far, it amounts to less than a 10th of what is planned by the 2016/17 fiscal year, according to the Institute for Fiscal Studies. The FT says in its annual “Green Budget”, the independent think-tank noted that the case for a short term fiscal stimulus to boost the economy is stronger than it was a year ago because growth over the past year has been so much weaker than had been expected. Moreover, the IFS calculates, it is likely that the combination of cuts and comparatively buoyant tax receipts mean that by the end of the 2016/17 year, government borrowing will be about £9bn lower than the current official forecast. The Telegraph says a separate report yesterday from the National Audit Office found 2.3 per cent of departmental spending cuts have been completed so far, against a target of 19pc by April 2015, and too many of those were achieved by non-permanent measures such as delaying IT programmes. Read more
If you liked the Bank of England inflation fan charts, then you’ll love the OBR’s fan charts.
GDP: Read more
George Osborne, the chancellor, will be forced to admit that the black hole in UK public finances has increased by almost £30bn, requiring the government to impose years of further austerity on the public sector, the FT says. His revised forecasts, to be spelt out in his autumn statement on Tuesday, have resulted from the independent Office for Budget Responsibility’s downgrading of its estimate of Britain’s economic potential over the next few years. In his March budget, the chancellor projected a current structural surplus of £6bn for 2014-15. But he will now have to concede the position will be £30bn worse in that year. The OBR’s revised outlook will move the official forecasts into line with those of others, such as the OECD.
There wasn’t a lot of sunshine to melt the avalanche of UK economic data released on Tuesday.
Revised UK Q4 GDP (-0.5 per cent rather than -0.6 per cent) and the UK Q4 current account deficit (-2.9 per cent compared to -2.4 per cent in Q3) came as little surprise. It’s too early to say what impact the poor growth figure will have into 2011 — and of course these so-called final GDP estimates will continue to be updated over the next few years. Read more
UK chancellor George Osborne on Wednesday delivered a Budget that stuck defiantly to his plan to cut public sector borrowing and fuel private sector growth, reports the FT. In spite of rising inflation, lower short-term growth and higher medium-term borrowing, Osborne said his plan to cut the deficit was on track and unveiled a raft of measures to stimulate economic growth, including an additional 1 point cut in the main rate of corporation tax, an easing of planning rules, a promise of less regulation and an ambitious plan to simplify taxes. While broadly welcomed by business, the independent Office for Budget Responsibility said the chancellor’s “plan for growth” would have no likely impact on the UK’s long-term growth potential. Ultimately, says Lex, growth may have to come from a “longer period of bargain-basement interest rates”. Read more
For all the talk of operation Odyssey Dawn, it was Wednesday’s Budget that tried to navigate between two monsters: rising inflation and slowing growth.
Guest editor Gavyn Davies made this point during FT Alphaville’s special Markets Live session this afternoon: Read more
Join us at 1530 UK time for a special edition of Markets Live to discuss the market impact of Britain’s 2011 Budget, just unveiled by Chancellor George Osborne on Wednesday.
Once again taking the controls will be today’s FT Alphaville guest editor, Gavyn Davies — former Goldman Sachs economist, adviser to No 10 and chairman of Fulcrum Asset Management. Read more
George Osborne is expected to put tax breaks for companies and hard-pressed families at the heart of Wednesday’s Budget but his scope for giveaways is constrained by a sombre backdrop of rising inflation and weakening tax revenues, the FT reports. The chancellor has promised a “Budget for growth” and could accelerate cuts to corporation tax, reinforcing Mr Osborne’s pledge to give Britain one of the world’s most competitive tax regimes. Mr Osborne has promised to cut the main corporation tax rate by 1 percentage point annually, with plans to cut it to 27 per cent in April at a cost of £400m. Treasury officials refused to confirm or deny suggestions that the chancellor may move faster. Read more
Ah, the Budget.
Taxes, benefits, sweeteners, dubious forecasts, the Gladstone box, drinking in the House (just the Chancellor, mind, if he so chooses), and Treasury civil servants staggering out of 1 Horse Guards Road to the nearest pub like students after a final exam. Read more
UK chancellor George Osborne will this week offer Budget sweeteners to low earners, motorists and holidaymakers but has ruled out giveaways or any slackening in the pace of cuts, reports the FT. The chancellor said on Sunday he had no need to inflict further pain through tax rises or spending cuts, suggesting he believes new measures in the March 23 Budget will be broadly fiscally neutral. But his room for manoeuvre is constrained, even though this year’s deficit is likely to undershoot the official forecast of £148.5bn by £8bn, according to the Ernst & Young Item Club, an independent forecaster. Economists say the Office for Budget Responsibility will cut its 2011 economic growth forecast from 2.1 to 1.8% and from 2.6 to 2.1% in 2012. Osborne is also negotiating with the Ministry of Defence to fund operations in Libya. one analyst told Sky News. Read more
High inflation is not a quick fix for Britain’s huge budget deficit, Robert Chote, chairman of the Office for Budget Responsibility, the UK’s public finances watchdog, has told the FT. Chote also reiterated warnings that if the government were to cut petrol duties in response to soaring oil prices, it would generate further instability in the public finances. His analysis undermines hopes that forecasts for inflation could at least give the chancellor extra room in the March 23 Budget. In his first interview since taking up his post at the OBR, Chote dashed hopes that the deficit would fall faster now that inflation appeared to be exceeding the office’s November forecasts. Read more
George Osborne, UK chancellor, on Wednesday announced £81bn of spending cuts to eliminate 490,000 jobs from Britain’s public payroll and slash another £7bn off welfare, reports the FT. Osborne, who inherited the biggest budget deficit of any major economy, is launching the UK’s most aggressive postwar fiscal consolidation. But, says the FT’s editorial comment, “it is a stretch to call the spending review a programme for growth in the medium term”. FT Alphaville examines the implications of “HM Abattoir’s” cuts in more detail, while Lex asks: “Can a collection of negatives add up to positives, and just how big a number is 490,000?” Read more
Delays to public spending cuts would spark a sell-off in the bond markets, destabilise the economy and increase borrowing costs for the government, investors have warned, the FT reports. The government set out £113bn of fiscal tightening over the next five years in its June emergency Budget. However, the Financial Times disclosed this month there had been discussions in Whitehall about delaying some of those cuts until the end of the parliamentary cycle to ease fiscal pain. In a survey of eight of the world’s biggest government bond investors, which hold about £200bn in gilts, a majority urges the government to stick to its tough fiscal plans when it announces the comprehensive spending review (CSR) on Wednesday. Read more
George Osborne’s austerity measures are beginning to bite and UK Plc is feeling the pain, FT Alphaville writes. On Tuesday shares in Cable & Wireless Worldwide fell after the telecoms company warned profits would be at the low end of City forecasts because of a sharp slowdown in UK public sector spending. C&W is the second FTSE 350 to company to blame the chancellor for an earnings miss — the first was housing company Connaught — and the question on the minds of brokers is who will be the next? Read more
RIP RPI?
As part of its emergency Budget, the UK government wants to switch public sector pension pay-outs from being based on the Retail Prices Index (RPI), to the Consumer Prices Index (CPI). CPI has generally been lower than its RPI-cousin, so the move could help reduce pension fund deficits (it also probably means lower pay-outs for pension fund contributors, but err, never mind that for now). Read more
Bowler hats and umbrellas at dawn — it’s a Bank of England spat (maybe) .
Former Monetary Policy Committee hellion David Blanchflower writes in his latest Bloomberg column: Read more
Plans for new schools and hospitals are to be slashed under a review of all capital spending planned by UK chancellor George Osborne, which is expected to direct scarce resources to projects that can show the most economic benefits, such as transport schemes. Under Mr Osborne’s “zero-based” approach, the Treasury is starting with a blank sheet of paper, meaning every project, including some already in the pipeline, will face scrutiny, the FT says. Read more
George Osborne, UK chancellor, has cast uncertainty over the future taxation of British banks, after suggesting that the £2bn levy announced in the Budget may be a taste of higher taxes to come, says the FT. Mr Osborne said in his Budget that he would explore the option of a separate Financial Activities Tax, based on banks’ profits and pay, and would “work with international partners to secure agreement”. Read more
UBS might expect Tuesday’s UK Budget bank levy to trim up to 8 per cent of normalised bank earnings, but it also thinks the tax’s net impact to be reduced by some clever, err, ‘balance sheet management.’
Fresh from the Swiss bank — this note: Read more
With time to read through Tuesday’s British austerity Budget, it looked like the gilt market was happy with the government’s fiscal plans, after all:
FT Alphaville presents its all-singing, all-dancing UK budget coverage. We’ve got immediate analyst, debt market and ratings agency reaction as UK chancellor George Osborne’s simultaneously wields his axe on gilt issuance, and ups the capital gains tax. There’s an overview of the £2bn bank levy, as well as some estimates for how much it will cost each British bank. Plus there’s the VAT bombshell and its expected impact on inflation and index-linked gilts, not to mention UK retailers. And, finally, there’s Osborne’s tie. Read more
The coalition government staked Britain’s economic future on being able to sustain a successful recovery while savagely cutting public spending, shedding tens of thousands of jobs, and raising consumption taxes, the FT says. In an emergency budget designed to seize control of strained public finances, George Osborne outlined cuts for most government departments of 25 per cent by 2014-15. This represents one of the most drastic spending squeezes in any advanced economy in recent times. Read more
Banks in the UK will be forced to pay more than £2bn in a new annual levy announced on Tuesday, in what was expected to be the first of a series of taxes on large financial institutions in several developed economies, the FT says. The tax, to be paid from January, will be imposed on UK banks and building societies as well as the UK operations of foreign banks. Read more
It was billed as the austerity budget. But Marc Ostwald of Monument Securities says Chancellor George Osborne’s fiscal outlook for the UK has been revealed to be rather rosy in one respect:
…the fundamental problematic remains that the GDP forecasts look to be too optimistic by roughly 0.3% to 0.5% per annum, i.e. for this year we would expect GDP to be around 1.0%; while for 2011-2015, GDP seems more likely to be in the 2.0-2.5% range rather than the 2.5%-3.0% range that this Budget assumes. Read more
Chancellor George Osborne introduced a VAT hike to 20 per cent from 17.5 per cent on Tuesday, effective from January 4 2011.
And yet… UK retailers rallied on the news: Read more
More tax increases from Britain’s Chancellor George Osborne, including on the thorny issue of capital gains tax.
Flashes, via Reuters: Read more
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