Give and take

The country know it will be giving and the government taking!

I am quite concerned the Mervyn King has given the plans the thumbs up - in fact I find this deeply disturbing. He after all he managed the regulation for stability and was, and still is, in charge of our money. His interest rate policy management substantially created the conditions that led to the boom and collapse.

Personally I wouldn't trust his recommendation at all - he is just doing it to try to avoid being sacked!

Tax and spend!?

If they don't cut NHS or schools and add a tax break on earnings to £10,000, how are they going to make savings?????

"Bank Chief hails deficit plan" Bank of England governor Mervyn King says the new coalition government's deficit reduction plan is "strong and powerful".

Says the BBC web site..

What plan? Has he seen somethign we haven't? All I can see is tax reductions here and a tiny 6Bn spending cut? So where is the "strong and powerful" deficit cut coming from?

Plus ca change....

This looks to me like an even bigger hole in the public finances. What are the odds on an increase in VAT to 19 or 20 per cent by the end of June?

Oh joy Mervyn King approves of the deficit reduction plan. Such is the ecstasy in the BoE that they are firing up the printing presses in anticipation of another bout of QE.

It is probable that British printing presses are no so efficient as German printing presses so, despite the best efforts of the BoE, the Europeans should win the race to absolute currency destruction.

I don't see how we can afford the £10k tax allowance at a time when public spending is set to be drastically cut back while at the same time protecting front line public services.
I agree with the principle that we need to make taxation fairer but is now the time to do it?

So I am guessing the state is going to need to shrink by as much as the Tories had planned anyway (£27bn) this year. When do you think we will see the full Lib Dem tax cut come into effect... I am guessing it will only happen this Parliament is QE is re-activated and we have a period of Uber inflation like under the last conservative govt.

Given how much Cameron has given away is he...

a) Willing to say anything to get into power?
b) A useless negotiator?
c) A Labour sleeper agent?

What, exactly, is the difference between raising the employee NIC threshold and raising Income Tax allowances? NICs - both employee's and employer's - are an income tax in all but name. As I see it, the new proposal will benefit middle-income earners more than low-income earners, by comparison with the ditched Conservative proposal that will fund it. I'm all in favour of moving people out of tax, but this proposal won't do it so long as the NIC threshold stays the same. This isn't about transparency in the tax system at all.

Interesting stuff Stephanie. I think I'm right in saying the Lib Dems intended to keep CGT Entrepreneurs' Relief, so that chimes with "generous exceptions for entrepreneurial activities". They also intended to reintroduce indexation.

Clearly their *intention* was not to penalise entrepreneurial activity but to prevent the conversion of income into capital for tax purposes - ie to prevent income tax avoidance - and they felt this was best achieved by aligning the marginal rates, as under the Tories pre-1997.

I think the argument for aligning income tax and CGT rates has a lot of merit in theory, it's just that it's being done at a time when the CGT rate is relatively low (compared to the old pre-'98 system) and the top income tax rate is high.

So, as the IFS said at their last briefing, in a way the argument for alignment is stronger than ever, but the resulting tax hike on capital gains is that much greater...

It is interesting that the Tories have swallowed this. It suggests they accept the theoretical argument and are satisfied that preserving entrepreneur's relief will address business concerns.

Does the joint policy document imply the full alignment of income tax and CGT rates then? I presume this will be done in stages, since the personal allowance will also rise in stages...?

Wait for the books

At some point in time the truth will need to be told in the fashion of an actual budget and taxes. Seems the pain aviodance system is in full gear but that can't last for long. Reduce the interest to be paid to banks and reduce the debt...that should be number one on the list..some relationship between cause and effect.

They clearly want to reduce the deficit - but they're not leaving themselves very much scope to do so if they're excluding £120b health; £86bn eductaion; £122b pensions from the scope of cuts.

From a total spend of £650b that leaves £322b they can target. That's quite a small number in the context of a £165b deficit....

A progressive policy on tax allowance is all very well but are they going to pay for it by sacking thousands of low payed public sector employees? A generous tax allowance is no good to the unemployed.
Sadly I feel the Tories for all their blustering on change still have the same hatered for anyone that works for the state. I fear for my job and the future.
I have not felt this uncertain since leaving school and looking for a job under the last Tory government. To me it feels like we are sleepwalking into a very dark period both socialy and economicly.
Only time will tell I expect.

I still think many haven't grasped the serious hole we're in nationally. These tax measures are just compromises to get the coalition off the ground. But it's a start.

What people have to realise is that the UK has been in general economic decline for some time though little noticeable day by day. However Labour's disastrous management has speeded up about 40 years' worth in less than 10.

The coalition is between a rock and a hard place and can really only manage further decline from a budgetary perspective.

The only real question is whether the market will force us into a double dip before we do it through a robust debt management reduction approach.

In many ways I think we'll follow that of Japan though we won't have the benefit of government bonds being held by the population and therefore will find it far more expensive servicing our colossal debt.

I hope that the global situation doesn't deteriorate which would only deepen the malaise. We are, to use the analogy, 'a frog in boiling water'....

Mr Osbourne's emergency budget should be fascinating, so is it all on VAT increase?

#10 ejoftheweb

"What, exactly, is the difference between raising the employee NIC threshold and raising Income Tax allowances? NICs - both employee's and employer's - are an income tax in all but name."

Not quite the same. As I understand it, if you are of state pension age and you are still working, you do pay income tax but you don't pay NI anymore. There are probably other examples as well, such as not paying NI on income from savings accounts. So perhaps good news for the older generation.

A 40% Captial Gains Tax on second and more homes will be joyfully welcome by first time buyers and the young - they will finally be able to afford homes as prices drop to realistic levels.... and they will reward the Tories by voting for them for their lifetimes.

40% CGT on second homes could be the cleverest move the Tories make long-term.

Oh, and it will bring in large amounts of much-needed tax when it is needed most - right now.

The Economic Imperative: The New Governments Challenge https://wp.me/pRHY4-17

#15. At 6:44pm on 12 May 2010, Gareth

You have every right to be afraid Gareth, as a Civil servant myself I'm expecting very harsh times ahead, at worst redundancy, poverty and the scrapheap as I'm nearing fifty and far from financially secure. Am I scared, hell yes you bet I am but let's be brutal here, the Tories think of public servants as a cancer on their profligate ways squandering money intended for diversion to the pockets of their paymasters in business. Public servants are seen as a liability, an unproductive systematic money tap that needs turning off. For "Big Society" read "Your on your own mate" because there will be NO state help for the unemployed and the rest of our "Big Society" will be too busy trying to survive to help.

So what to do eh? Sit and take it? Lie down and die? Ignore it, it'll go away? Nope - only one option that I can see, fight and fight for all you're worth because believe me we are worth it no matter what anyone tells you. Did you or I cause the crash, nope don't recall waking up one day and destroying the worlds finances. Did you or I gamble with other peoples money, nope. Did you or I add profits we hadn't got to our balance sheets, nope. Did you or I need bailing out when these profits didn't materialise, nope. So don't feel guilty, no remorse, don't let them tell you you're surplus to requirements or that your job is a fake, get out and fight for it.

I have no problem with fighting for my future whatever the outcome, I see no alternative. The government want me to fall on my sword to pay for the banks greed driven failures so whether I fall on my sword as a civil servant or an unemployed statistic matters not to me, I WILL FIGHT and I won't be alone. My consolation is if I lose my job the banks won't get a penny out of me and I certainly won't be paying back the £20k I owe them and neither will many others. Lets see how they get on with many many more defaults.

Finally lets consider - pay cuts/redundancies = more loan defaults = less money in the economy = less retail sales = companies under pressure = less tax receipts = pay cuts/redundancies = even more loan defaults = even less money in the economy = oh you must be getting it by now. We're dead meat aren't we.

We're all in this together.

Up the workers

#16. At 7:02pm on 12 May 2010, Rugbyprof wrote:

"However Labour's disastrous management has speeded up about 40 years' worth in less than 10."

Not totally true Prof and you know it, you're far from stupid that's just politics talking.

"I hope that the global situation doesn't deteriorate which would only deepen the malaise. We are, to use the analogy, 'a frog in boiling water'...."

Forlorn hope methinks Prof.

It is good that the Tories and Liberals have reached agreement. WShat a pity they appear to have neglected to procure the agreement of CDS traders.

Turn that muzak down and you may hear the beating of the drums of death drawing ever closer

https://www.zerohedge.com/article/cds-traders-beating-uk-death-drums

SF: The Liberal Democrats aren't going to get their "mansion tax".

That, I think, is a shame. It would have really helped to even the tax take up in a way that would not need constant closing of loopholes. It would also be paid by rich non-doms and, if well-implemented, would have put some badly needed downward pressure on house prices.

If on the other hand, George Osborne will soon go off on a trip around the G8, then the rest of the G20, to get agreement on double taxation agreements, then put pressure on all tax havens to join in a stricter regime, then return and close all UK tax loopholes before puuting tax up on high earners in the UK, then fine. We probably don't need it.

OK, yeah, that's cynical.

re #16
This morning the words of Phil Esterhaze from HILL STREET BLUES came to mind:

"Hey, HEY! Let's be .. very, VERY careful ... out there, today".

Never mind tax rises and spending cuts. The main priority for the new Government...

END BOOM & BUST!!!!

If you do tht you are home and hosed for at lest a decade.......

Congratulations to the two parties for managing to put a deal together.

From a public perception point of view it is good to see people putting their differences aside and trying to work together and it sets a good example to the rest of society in my opinion.

I believe the tax allowance rise was to be in stages with the initial increase being £1000 so its not quite the big tax burden that an earlier respondant suggested.

I'm sure there is lots of pain to come from tax rises in one form or another, but the country can't keep on spending more than it earns.
We are already being compared to Greece in many ways and will suffer a similar fate without facing some harsh realities.

A rise in Capital Gains Tax sounds like a sensible move if they can target their exemptions correctly.
In particular I would welcome the taxing of 2nd homes/holiday homes which have become the type of speculative ventures that have helped push house prices to unsustainable and unaffordable levels, leaving great swathes of people totally locked out from any opportunity of having their own home.

There's no need to worry about them finding extra tax revenue though, all Governments are good at getting tax!

#21 NorthSeaHalibut. I wish you like, but you should remember "It is easier to resist at the begining than at the end"

It is true that you did not cause this crisis, but you should have remembered if something looks to good to be true then it probably is. Did you really think that an entire country could earn its living through having its population sell each other burgers, insurance and houses?

Not a substantive word that Scargill said was untrue. It is time now to pay the price.

I always took the view that the GBP 10,000 tax-free allowance proposed by the Liberal Democrats was actually the precursor for a very robust sequence of deficit reduction measures including both severe spending cuts and unpleasant tax hikes. It was, and is, if anything but a measure of trying to be fair before the muck hits the fan.

I think it is a pity that the allowance only goes as far as GBP 10k as in my view why should someone on less than the national average wage pay any income tax at all. Sadly the nation does not consider it acceptable to reward the people who work.

The fact that this revised allowance will cost the Treasury GBP 5 billion just shows how much New Labour apparat were soaking the poor to pay for their own six figure salaried sinecures.

I hope that as time passes there will now be a gradual movement towards truth and transparency in government. The most repellent characteristic of New Labour was its complete lack of respect for the public intelligence, its spinning of a party line, its capacity for dissimulation and its unwholesome lack of candour.

If it is going to be bad then we need to know the truth so that we can all take appropriate measures to protect ourselves and look out for each other. By my reckoning it is going to be bad, many things will have to change and many vested interests will be challenged.

Onward-ho bids a sad farewell to Gordon and Alistair ,and the recent growth and manufacturing figures,for which we owe them thanks, will help the deficit a lot more than these insane income tax cuts.
And how Mervyn is acting rather un-independently by spouting out Tory policy is rather worrying.
I am worried the usual Tory interest rate hikes are just around the corner.
And quite how you encourage investment by a 125% hike in CGT is a mystery.
Looks like this Regressive coalition is already botching things up.
2 TAXIS FOR CLEGG AND CAMERON IN THE AUTUMN?

12. At 5:07pm on 12 May 2010, YellowBrickRoad wrote:
Wait for the books
- - - - -- -

What books?

If you mean the state of public finances then i've always wondered if we got the whole truth from Labour

Otherwise please tell

#28. At 9:42pm on 12 May 2010, armagediontimes wrote:

#21 NorthSeaHalibut. "I wish you like, but you should remember "It is easier to resist at the begining than at the end"

It is true that you did not cause this crisis, but you should have remembered if something looks to good to be true then it probably is. Did you really think that an entire country could earn its living through having its population sell each other burgers, insurance and houses?

Not a substantive word that Scargill said was untrue. It is time now to pay the price."


I know all this, and agree with it totally, I proudly sported my "Coal Not Dole" badge in my previous job - 22 years as a Banker - in solidarity with Scargill not just in blind protest at the injustice to the miners but also the future destruction of UK manufacturing which Scargill predicted. I eventually walked out of the banking profession unable to deal with my conscience and headed for public service to save my soul. What happens, the banks I loath fail, manufacturing disappears, we sponsor the service and finance sectors as our only hope of growth, we sink into the abyss - I know all this.

Now here's the thing, I have been resisting for years not just now at the end, the problem is not many others have been resisting with me so it didn't amount to a hill of beans. But now, well hey, how many millions are going to be brassed off, is this my time at last, my 15 minutes. I'm up for it, it just depends on who else turns up to determine whether its worth it.

I genuinely think something is approaching, just what I can't be sure. The public don't know they're going to be up in arms yet but their ignorance will only make things more harsh for them when it hits and their rage will be all the worse for it. Check out the majority of Credit Default Swap traders, they're hedging on a sterling crisis and guess what that means. This is only the beginning, it will take a year or so to reach crisis point - I can wait.

If Britain goes belly up the fault will lie at the door of the new incumbents.

Brown & Darling had the countered the worldwide recession, their fiscal easing was adopted by other countries, the green shoots were there to be seen.

The voting public blinked first, now we have a couple of unproven chancers gambling with our future.

#23 Arma

Any further info on the particular counterparties for the CDSs traded there? If the CDS issuers are banks with referenced assets as being homeloans and suchlike, then the CDSs would not be impacted by PIIG Bond defaults, but if the CDSs issuers are banks with interbank loans, or some hedge funds...?

Anyway, in my opinion, they are barking up the wrong tree..Why France? They must know something I don't. What signal does this actually send, and to what does it exactly respond? I don't really understand this actually.

30. At 9:57pm on 12 May 2010, onward-ho wrote:
"Onward-ho bids a sad farewell to Gordon and Alistair"

Good for you O-h! We have a huge deficit of 12% of GDP, an uncompetitive economy, massive regulation, a bloated public sector, increasing unemployment, too many dependent on welfare and you bemoan the demise of the NuLiebour economic bandits!

Like the bankrupt who keeps borrowing and fools himself that he will pay it back - that's NuLiebour economics. Alistair was alright but good riddance McRuin. You have left an economy that yet again another party and a new generation has to pick up the pieces of profligate government spending.

It didn't have to be that way and it is no wonder that the peripheries of the UK voted to keep Brown in power - they know what has to be done and don't like it. Nor do I, for that matter but you could see it coming 9 years ago!

My personal view is that David has already shown the great statesman he already is by sharing power in real terms with Nick Clegg and the Liberals to bring a stable partnership in the public interest.

I am truely sad for Gordon as in the last days and the last speeches he showed a better side a side that i am sure first brought him to politics. I hope he will take time to recharge his batteries and wish him well.

As for the Economy i don't envy George's task i wonder if we'll get to know whats in the books ...

I can only imagine this is going to be a tough time, but i have confidence that if there is a man who will sort the problem it will be George Osbourne.

30. At 9:57pm on 12 May 2010, onward-ho wrote:

"And how Mervyn is acting rather un-independently by spouting out Tory policy is rather worrying."

Alternatively, perhaps Mervyn now feels that he is finally free of Labour spin and can actually say what he really believes to be the truth.

Just a thought.

Congestion charging

Property taxes

Road pricing for trucks

Lower the school leaving age

Mild import duties

Leave the "EU"

33. "If Britain goes belly up the fault will lie at the door of the new incumbents. Brown & Darling had the countered the worldwide recession, their fiscal easing was adopted by other countries, the green shoots were there to be seen."

You have got to be kidding... All Brown and Darling did was create another mini bubble by " electronically printing" VAST ammounts of cash. Anyone could have done that, it hasn't created a recovery at all. it just "bought one" on the H.P.

The green shoots are there all right, but the plant has no roots.

#34 Oblivion I don´t know who the counterparties are (but almost unbelievably there are rumours that some of the major movers are traders inside French banks - see below). The numbers are so huge that this can only be a speculative attack.

They are after France because of the exposure of French banks to the PIIGS. The French banks get their money from French public sector pension funds - so all the losses stay in France.

There are rumours that on Sunday France was about to discover that it couldn´t refinance itself - hence the gigantic bailout all co-ordinated by the French head of the ECB and the French head of the IMF.

Just to make matters worse the WSJ ran an article headlined "French Nuclear Industry in Meltdown" Apparently there is a lot of infighting going on and they cannot win export contracts - which is the long term basis of their business model.

The main signal it sends is that fiat currencies are approaching the end of the line. Could be next week, could be next year, but there is no way out.

What David Cameron as done by appointing 20 Lib-Dem members into the cabinet is actually very clever move, the coalition need 320 vote at all time getting measures through the house common, he can get three whips in forcing all (306) Conservative MP but not sure of Lib-Dem With 20 Lib-Dem now in the government, easy passage way now created. Lots of disgruntle Tory mp no doubt. European issue would still divide them, they would last for 18 months, The financial policies of Labour party cannot be change not for another 2 years or so. Through natural wastage eg ; dead by accident & natural causes would reduce the majority by 2012 so, legislature for 5 years coalition is panicking & stupid move. The core membership of conservative party are old & don't embraced change of any kind, while the lib-Dem are labour at heart, that would be problematic at some point. Labour would regroup quickly to win next general election..

Ebenezer
King's Avenue. London

#33 Mackem_Man

They tried to buy votes... and got yours hook line and sinker!!

100's of Billions borrowed and not a single penny needed saving prior to the election.... what a sham! I don't know how brown had the gaul to show his face after the election...

Can the Audit Commission look at whether the money borrowed by Brown was well spent?

No mention of IR35? It was a common manifesto pledge to remove/replace that odious piece of legislation.

Also surprised that the spending review is delayed until the autumn - I would have thought that they would have wanted to publish the state of play they inherited (and we know it is worse than Labour have let on, since they broke with tradition and didn't do it prior to the election).

I suspect they are lining up something radical for the first budget.

UK debt restructuring anyone?

Devaluation?

Despite the importance of the UK economy to us, we are but a small player on the world stage. I would be grateful for another post, Stephanie, on how you see the Euro crisis developing and how that might impact us. Throwing money at the Euro's problems is clearly not a solution.

Trying to outguess the mechanisms of the coaltion seems a little pointless.

#33 >>...their fiscal easing was adopted by other countries

Aside from America, who virtually invented the concept after they abandoned the Bretton Woods Accord, who else had quantitatively eased their currency ?? None of the Eurozone countries can or are allowed to; hence Greece's current problems !!

Or, perhaps you think we should follow Zimbabwe and print £100,000,000,000 notes JUST TO BUY A LOAF OF BREAD ??

#37 >>Alternatively, perhaps Mervyn now feels that he is finally free of Labour spin and can actually say what he really believes to be the truth.

Absolutely not !! Anything that contradicts Labour's Ministry of Truth cannot possibly be the Truth !! The Truth is what the Ministry of Truth say it is, not what it really is !!

Savings in the civil service would be easy if they started to genuinely manage the performance of the staff, and get rid of those who are coasting to their very generous pensions.

#43 >>Also surprised that the spending review is delayed until the autumn - I would have thought that they would have wanted to publish the state of play they inherited (and we know it is worse than Labour have let on, since they broke with tradition and didn't do it prior to the election).

You can't review what you have no facts on !! I think they are waiting to get their hands on the *REAL* government account books and spend time auditing them before they can review the spendings. It took years to un-revel ENRON's mess. I hope it wouldn't take that long to un-revel the Brown mess !! All that off-books fiddling with PPPs and PFIs !!

re #46
Are you sure about that? We may be sliding down the TopTen but we are in it. Not that long ago we were around the #4/#5 slot.

Secondly, I would argue that there is evidence that the UK economy exerts a disproportionately large influence on the world economy. For example, some in the original Six were desperate for us to join the EU (General de Gaulle being a notable exception), in part because of our economic size and influence. Another example would be our influence as a consurmer of Japanese goods in the 1970's onwards.

Thirdly, thanks to some 'accidents' of geography and history, we enjoy a premier position in world markets, especially the financial ones.

Once this fiasco is over the party(ies) involved could looking at a long period in opposition

Three cheers for the "generous exceptions for entrepreneurial activities" – and let’s hope it gets some real support.

Small businesses and entrepreneurs – who provide over 50 per cent of UK turnover - have a huge potential for innovating and creating jobs and wealth. Anything that supports responsible risk-taking and encourages innovation in this important business sector has got to be good for the economy.

chalet1 wrote:

"Savings in the civil service would be easy if they started to genuinely manage the performance of the staff, and get rid of those who are coasting to their very generous pensions."

We shuold sack them all and offer all of their jobs to everyone (with a defined contribution pension). If the unions object then ban them.

We need a lot more unemployed proles to bring down the cost of our workers. Cut benefits as well. Too many people have had it easy the last few years...

re #1
It would not have been wise to get into that at the time of the banking crisis, but now we have some distance, he did appear to me to be asleep on the job.

Or did King present continual warnings to the then Chancellor and later Prime Minister (perhaps, along with Eddie George, throughout the Labour administration), only to be rebuffed? Governors work very quietly and very confidentially when there is a crisis. His comments now may be an indicator of something else.

All we can do is await the future and the memoirs.

oops, sorry, re #1 again, pressed Post Comment too soon:

While Gordon Brown gave the Bank of England freedom to set interest rates, he set parameters and the means to achieve it via the Policy Committee. I would argue that Brown set the wrong parameters and missed out on a golden opportunity for much needed negative inflation in the UK economy. That was yet another plank in building the walkway to the credit crunch and banking crisis.

re #5
What we really need to do with VAT at present is reduce it. Severely. But we can't because the EU wants members to have at least 15% VAT rates. What might be ideal is a split rate: say, ten per cent on some more essential items, thirty per cent on everything else, especially less important purchases, such as HD flat screen TVs.

The other problem is that VAT tends to be inflationary because it affects road fuels and, now, utility bills. So one option might be to remove these from VAT. On these items VAT is an escalator which top slices them when prices rise. That leaves our economy too vulnerable to uncontrollable, external factors.

#40 Arma

Well if those CDSs are being dumped, it is either because:

a) The referenced CDS debtor is somehow compromised. This could imply that the referenced CDS debtor is a contagion-prone bank, and that the CDS issuer is the creditor and may be some other party than a bank

b) The flow of premiums is denominated in currency that is expected to tank

c) The CDS protection buyer is expected to go bankrupt

Regarding fiat currencies, it is worth recognising that all currencies are essentially fiat, depending on what the government expects its taxes paid in. Also, our system of international trade is largely based on the USD, which is backed by oil, which in turn is backed by the US military. So, if you will, we have a bit of a grey area when it comes to the 'fiatness' of currency. What I think you sense is the demise of the underpinnings of the prevailing suite of currencies, and if so then I agree. Whether this demise will be accompanied by widespread currency collapse or some smooth transition to a new framework depends on the effectiveness of our leadership, and I am not hopeful in this regard.

#51 >>Are you sure about that? We may be sliding down the TopTen but we are in it. Not that long ago we were around the #4/#5 slot.

At last count, we are in #6 but still not quite at the bottom yet !! However, that count included the financial services which had rather shrunk somewhat since !!

>>...General de Gaulle being a notable exception

De Gaulle was a very balanced man. He had a chip on each shoulder and despised anyone who's not French. He also despised quite a few Frenchmen, too !!

>>Thirdly, thanks to some 'accidents' of geography and history, we enjoy a premier position in world markets, especially the financial ones.

And like all geographic "accidents", what is made by one geographic occurance can be un-nade by another !! Since the economic centre of gravity had shifted Eastwards, this puts us at rather a greater distance (literally and economically) from the centre !!

#54 Now, now !! We needn't go to such extremes !!

In addition to #58

Also, those amounts are only notional.

#56 >>I would argue that Brown set the wrong parameters and missed out on a golden opportunity for much needed negative inflation in the UK economy

Negetive inflation or deflation would have reduced his tax take and spoilt his dictat that he "abolished booms and busts" !! This way, he could claim that there was a boom, even if it was based on ever greater borrowings rather than real profits !!

The deal does look better for Lib Dems but has one caveat for them. Once the constitution is changed to force fixed 5 year term parliaments (including this parliament), and with 55% of MPs required to bring government down in confidence vote, it will require the Conservatives to vote against themselves to be removed from office. This is because they have more than 45% of the seats in the House of Commons. And therefore the Lib Dems will lose a significant amount of influence at this point. It may be more difficult for the Conservatives to pass new legislation however they will be firmly in the driving seat with regards to Coalition policy.

60. At 08:57am on 13 May 2010, ishkandar wrote:

"#54 Now, now !! We needn't go to such extremes !!"

Are you sure? Bottom line - we cannot afford the standard of living we have borrowed to enjoy in the last few years. If we do not do something pretty drastic then the financial markets will crucify us (making themselves loads of mjoney in the process).

And, reading these boards teaches us that public sector pensions are at fault for everything in society, from our current debts, to the banking crisis all the way back to Eve taking the apple from the tree...

A lot of people are going to get hurt in the next few years (not the ones who got rich by screwing us all over, of course). Wuodln't we be better considering extreme measures and reining them back if we don;'t need to go that far?

I still think Con/Lib/Lab (minus Brown) should have gone for a 5 year coalition government so the next election comes around in 2015 with blood on all of their hands.

the cuts are quite obviously going to be coming from the public sector wage bill; 10% cut in wages for all public sector employees will raise a lot of ££££ and also reduce the amount due in final salary pension schemes giving a double saving.

I mean £5 billion a year could be saved by a pay freeze; shows how out of control the public sector is and how we got in this financial mess.

Stephanie

Usually, I'm a big fan of yours. But there was one comment on last night's 10 o'clock news that was farcical: you blamed the fiscal deficit on the financial crisis, not Labour's massive mis-management of the public finances.

The banking/financial crisis has cost Britain £8 bn, but we may actually make a profit over time.

Labour's deficit of £160 bn came from increasing spending on public services, financed not through taxation (although there was plenty of this) but through extra debt. Ludicrous.

And ludicrous of you to pretend the deficit is the result of anything else!

Please remember this when the pain hits.

The PCS victory in the high court has far reaching implications for the governments austerity plans.

They can't get rid of civil servants on the cheap and alter our accrued benefits without our agreement - fat chance!! It has also brought five other unions back to the negotiating table - oh dear what a mess. This is going to cost them a lot more than they thought because they've either got to change the law (takes too long), renegotiate (too many pitfalls) or or go ahead with redundancies on what are currently very generous terms.

Unions 1 Government 0 but the ball is still in play and there's 85 minutes to go.

Up the workers.

DO something BIG.

For example entrepreneurs are, well, entrepreneurs. The Department for trade and Industry - staffed by civil servants, is therefore an oxymoron cubed. A hangover from a central planning past which a long time ago lost any credibility.

Bin it, and save a few billion. And let industry get on with making money.

"19. At 8:17pm on 12 May 2010, tawse57 wrote:
A 40% Captial Gains Tax on second and more homes will be joyfully welcome by first time buyers and the young - they will finally be able to afford homes as prices drop to realistic levels.... and they will reward the Tories by voting for them for their lifetimes.

40% CGT on second homes could be the cleverest move the Tories make long-term.

Oh, and it will bring in large amounts of much-needed tax when it is needed most - right now."

I feel we have an overpriced housing bubble which will deflate which could result in substantial losses on housing.

I might not be correct in my understanding of this but this could result in large 40% capital gains losses. I think if policies were brought in like this it should be when the housing market is low.

In my view, reflecting the price of houses in the rate of inflation would be a good move as interest rates would have risen to cool inflation

3. At 4:30pm on 12 May 2010, Simon H wrote:
If they don't cut NHS or schools and add a tax break on earnings to £10,000, how are they going to make savings?????
- - - - -

By elimintating waste. Anyone who has worked in the public sector recently knows that there is plenty of it.

All the other countries who have been forced to show their hand in the deficit reduction area have had to cut public sector wages.... and reduce public sector jobs.

The difference between what is happening now and in past recessions is that --as we are seeing the beginning in this country--- the decisions are largely forced.

What factors will make the UK different from Ireland, Greece and now Spain (where large public sector salary cuts are happening even with 20% unemployment)?

Oh, that's right...we are bigger...and we don't make useless stuff like tomatoes and melons ...we make financial products, although these have been proven every bit as dodgy as a POETS day 1970's Austin Allegro....

66. At 09:53am on 13 May 2010, bluntjeremy wrote:
Stephanie

"The banking/financial crisis has cost Britain £8 bn,..."

No it didn't, you are way, way too low on that. What about the companies that went bust, unemployment, lost tax revenue and the bank bailouts. It cost several times your figure of £8Billion. Look outside the box mate.

"..... but we may actually make a profit over time."

No we won't

#65. At 09:51am on 13 May 2010, mjr1987 wrote:

And cost the economy how much by taking disposal income away from 6 million people. Deluded mate! I'm sick of taking the rap for this.

Tell you what we'll all clear off and you can deal with the UK infrsatructure - you'll soon be begging for us to come back.

#64 "I still think Con/Lib/Lab (minus Brown) should have gone for a 5 year coalition government so the next election comes around in 2015 with blood on all of their hands."

Absolutely. And if not that, Lib/Lab. But of course a government of national unity would have been the right thing to do; whatever many posters here think, most issues at play are not politcal, in fact there is no ideology left in British politics as there is no working class and no aristocracy. I guess Labour convinced themselves (and Onward-Ho) that there was no crisis, so why bother solving it.

On the other hand, being in opposition, as Stanilic pointed out I think, will give Labour time to redefine and position themselves in the political spectrum, something "the left" has to do now everywhere. No bad thing that, though of course will be done while Rome burns.

I am not sure whether the Queen could have asked for a national unity government, but if she could and did not, I think she made a mistake. This is, for the first time in decades, a point when the monarchy should have intervened in politics.

Well, for now Labour is no more. Did you notice how boring the blog has become immediately? Amusing to see critics become apologists and vice versa, but not extremely so.

I think that a debate must be initiated on how cuts are to be implemented, who has the right to decide on them, etc.

I haven't read all comments , so please forgive me if this has been stated before. I believe that the following is correct. If I work and earn £12000 I will pay NI on all my income over the lower earnings limit. I am sure that someone will work this out. However, if I have 3 part time jobs all of equal pay £4000 per annum I would pay no NI. This is because I would not reach the threshold earning limit on my first job, and as anyone who has a 2nd and or 3rd job will know - you do not pay NI on the earnings from these jobs.

perhaps this is a good way of increasing the overall take home pay of individuals? just a thought.

Mervyn King reminds me of the song about the Vicar of Bray.

The Liberal Democrats are taking a tremendous risk. In return for a promise to implement some of their pet ideas, they have agreed, allegedly in the interest of "secure and stable" government, to raising the threshold for a successful confidence vote. This would mean, that even if they had the support of all other non Tory members of Parliament, they would not be able to vote Cameron out.

If and when Greek style rioting in the streets starts, as public servants are put out of work by expenditure cuts to pay the bankers' gambling debts, the Lib Dem MPs will be powerless to prevent Osbourne wielding the axe ever more enthusiastically.

"On Wednesday, the Bank of England governor, Mervyn King, said the UK's economy should shift its weight towards exports, rather than relying on domestic consumption."

I wonder if any other country thought about that, what a brilliant idea. Let's open a car factory, or may be make LCD screens. Or may be the genius thinks we should export something UK manufactures and noone else is making but needs desperately. Well tell us what, Mervyn.

Still wants growth. Oh the men of yesteryear.

Given the huge deficit and the ring fencing around schools and NHS, the £10K tax threshold, and the other cuts (and non-implementation of the Mansion Tax, NI Employee contributions etc.) in tax, these 'savings' within government are looking more and more critical, and I suspect they won't really exist, despite the report from Gershon et al.

In that light, to maintain the commitment to a replacement for Trident at a whopping £100bn, when our frontline troops still don't have all the equipment they need to protect themselves (or, if we're being honest all round, the numbers on the ground), seems the height of folly.

When are we going to grow up and realise that Strategic Nuclear Weapons are obsolete in real, day-to-day politics, and that a properly equipped conventional force is by far more useful, and the impact the £100bn saving would make in both equipping our military and reducing the structural deficit of the country, is by far more important than screaming, ever more shrilly, "Listen to me, I have a nuclear bomb..!"

#55, #56 Up2snuff wrote:

"While Gordon Brown gave the Bank of England freedom to set interest rates, he set parameters and the means to achieve it via the Policy Committee. I would argue that Brown set the wrong parameters and missed out on a golden opportunity for much needed negative inflation in the UK economy. That was yet another plank in building the walkway to the credit crunch and banking crisis."

I think you are missing one very important matter and that is the we pay Mervyn King (and paid his predecessor) to exercise their judgement to ensure that stability of money - it is absolutely not a valid excuse for Mervyn King (and his predecessor the late Eddie George) to argue they were constrained in any way by the Government. They knew about the uncontrolled expansion of money and the boom in house prices that was inevitable and they stood by and did nothing. We didn't/don't employ them to be incompetent apparatchiks; we employ they to speak truth unto power - this they absolutely failed to do and so they created the conditions that created the boom and all that followed!

They were both incompetent. (As were/are the MPC and the Permanent Secretaries of the Treasury and the whole FSA (who are all still in post by the way!)

First bonkers policy

Lets reduce income tax by raising capital gains tax.
Income tax is regular and controllable to large extent while Capital Gains tax is discretionary to the same extent. It will not work.

i never thought the tories would agree to that. Who's in charge of this coalition?

trylypuzzled wrote:

"But of course a government of national unity would have been the right thing to do;"

Sadly it would have required statesmen and all we have are politicians.

"I am not sure whether the Queen could have asked for a national unity government, but if she could and did not, I think she made a mistake."

I doubt she even thought of it. I feel her main concern is the continuation of the monarchy and part of that is staying out of politics, at least visible politics.

What is it that gives me the feeling that the higher-education sector is about to be clobbered hard?

Firstly I realise that this comment may now be mostly irrelevant but one minor term used by opponents of Gordrn Brown during the election campaign was that he was unelected. We do not have a presidential system. No prime minister is elected. He is the leader of the elected party and as such David Cameron is no more elected than was Gordon Brown.

Secondly it is a pity that critics of a preferential voting system do not take the trouble to study the Australian electoral process. I lived in Australia for over 40 years and in all that time a preferential system was and is still used, much for many years to the disadvantage of the Labour Party. I do not critisize the principle of coalition but in the Auatralian case it certainly favoured the right wing. For many years the Labour Party gained the largest number of votes but less than 51% and the Liberal(Conservative) Party and the Country (later the National)Party combined to form a coalition, but at least what the system does is to give the voter the opportunity to express thier real preference for a preferred form of government whilst reserving them the opportunity, should that party not gain sufficient votes to govern, to have thier vote transferred to thier second preference, ie. primary vote to UKIP second preference to Conservative or primary vote to Greens and secondary vote to Labour and so on down the list of candidates for that particular seat until one party has a majority. Also contrary to what many critics of the system claim the system does not take long to produce a result. Usually within 24 hours and not more than 72 hours when the result is dependant on several recounts but then one has to also bear in mind the vast distances that election boxes have to travel to reach the counting stations in some of the outback electorates.

The potential £5Bn cost would be more than covered by the £8bn of unclaimed benefits. The policy does leave most people on benefits more discriminated against by being unable to take advantage of the increased allowance for fear of losing benefits. In short the £10,000 is an illusion that benefits the low end of middle incomes of the employed. With unemployment as a cudgel, the policy allows employers to rejig their remuneration packages so that employees are compensated below the threshold and topped up with tax credits. It is a win-win for employers. But the taxpayer will end up paying for it: one more step in converting the public purse into a non means tested corporate welfare scheme.

The proposed economic policies don't seem that much different from what the previous government might have done (and in many cases are actually more progressive that what went before).

The big question of course is how spending cuts will be achieved, especially as health and education are ringfenced, Trident is retained etc. Are we just going to see more PFI-style fudging of the figures? Shuffling debt from the public sector to the private sector without actually fixing the underlying problem? If so, then it won't work.

Private sector debt is already far too high. Asset (eg house) prices are far too high. The gap between rich and poor is far too high. These are the fundamental causes of the banking crisis (the excessive risk taking of the banks was inevitable given these conditions). Cutting public sector debt by making private sector debt even worse is just shuffling deck-chairs on the Titanic. Overall (public + private) debt needs to be brought down.

#64 >>we cannot afford the standard of living we have borrowed to enjoy in the last few years.

Admittedly, we have borrowed to such an extent that Mr. Micawber will be greatly alarmed !!

>>And, reading these boards teaches us that public sector pensions are at fault for everything in society, from our current debts, to the banking crisis all the way back to Eve taking the apple from the tree...

Somehow, I doubt that the public sector pensions have such a wide-ranging effect. I also doubt that there were all these voyeurs watching Eve take that apple from that tree !!

If you mantioned quangos, over-paid, inefficient management and make-work jobs as a basis of empire-building, then I'd agree that they are some of the causes of the debt.

>>Wuodln't we be better considering extreme measures and reining them back if we don;'t need to go that far?

The only effective measure against them will be extreme totalitarianism and that makes the "cure" worse than the "disease" !!

The equalisation of CGT rates and income tax rates is sensible as currently all that happens is that the tax avoidance industry designs schemes to convert income into a capital gain (in the 1970s we had schemes to convert capital gains into income).

But the current rules on entrepreneur relief are not fit for purpose. They were invented not for good economic reasons but to penalise private equity because it gave NuLab a couple of headlines. In reality what they do is completely scupper the ability of SME in Britain to raise money.

Consider the current situation;

1. You have a company turning over £3m

2. You need £1m to buy new equipment and expand your business

You could try a bank, but as we all suspect there is little appetite for the bans to lend to small British businesses.

You could find a business angel who would purchase 25% of your company. Problem is that the business angel will not qualify for entrepreneur relief (he must own at least 5% of the shares AND be a director or employee). Problem is that the business angel has just seen his tax bill on the investment more than double, so to make the same after tax return he will know want more of the company. So you will now need to sell 40% of your company to give the business angel the same rate of return.

What does that mean...well if you need to raise more money in the future to support your growing business, the business angel will own your company not you even though he may have only put in £1.5m on a business which is then turning over £4-5m.

This is a long winded way of saying that, as usual, the politicians have not thought this through. If you are going to align CGT and income tax rates then what is needed is rules along the lines of the old taper relief provisions so that real investors in SME companies are encouraged to provide medium term (2-3 year) money to support growing British businesses

I think everyone is in agreement - we're vastly in debt, and we need to massively decrease spending.
There will be much pain ahead. However, instead of just targeting the much abused taxpayer, can we please share the pain with all of those who are on benefits?
How about for every tax rise, there is an equal percentage benefit cut.
Also, lets have a maximum cap on what can be claimed by any household/person, covering the whole range of benefits being handed out.
And stop any child benefit after the first 3 kids. Ther are too many 'baby factories' out there enjoying the public purse.
Benefits are supposed to 'assist' people, not make them rich.

Their has been quite a lot of comments in the press on VAT.

I would not like the scope of VAT to be widened onto Food, Books or Childrens Clothes or the level of VAT on Fuel or necessary goods to be increased.

However, it may be a good idea to have a luxury VAT on things like HiFi, TV, ipods and most other consumer electonics and photography equipment of say 50+% VAT. (Excluded items would be white goods i.e. Fridges, Washing Machines, cookers etc)

Most electronic equipment has come down in price year on year and so it does not appear to be too painfull for most people or the British economy to increase the VAT on luxury goods only. Espesially as most of them are imported and so should improve our balance of payments.

Top end cars could also be included.

People seem to believe that parties such as the Lib Dems (those that realise they will not be forming a majority government) write their manifestos 100% in accordance with their beliefs.

They don't do that quite simply because they know that they will never be implemented so they are free to include policies that are there only to attract votes and if that does it's job and we end up with a hung parliament, then they serve the purpose of being horse-traded away.

Note that the nuttiest LD promises have disappeared - Trident and immigration amnesty. Some of the others that have remained they may be a little surprised at, but I suspect Cameron is making them responsible for delivering them looking at the cabinet appointments and they will ultimately be held responsible for those policies if they don't work. NB - they even backed off the £10,000 lower limit tax break to phase it in because they know that they couldn't pay for it in today's economy.

I wish the British public could put aside entrenched and sometimes unjustified partisan views. Cameron and Clegg have got off to a great start and I think are genuinely seeking the best way out of a difficult financial situation, combining the best of their two sets of policies.

There is no easy and painless way of saving £165B per year - the sad fact is that the public sector has been allowed to grow too large over the past decade or so and we can only get a grip on the problem by a combination of extra taxes and savings.

At least with two parties involved, the exact way in which this handled should reasonably reflect the wishes of the public.

Let's give them a chance and this unique coalition some support.

The cuts are nowhere near big enough. As JFH says get ready for more QE as the Tordems take the easy way out.

Inflation > 10% anyone? as the BoE disregards its target again.

(Kinda wished Brown had won because he was easier to hate for pursuing these kinds of policies)

Lets be perfectly honest about this, the only surefire way to reduce this deficit is to raise taxes and , whilst this will be unpopular we have to look at the long term. Come on you politicians let's get this out in the open and stop trying to hide these increases elsewhere. You get a lot more respect for this.

How about combining all taxes into one place and reduce the middle management within the tax management structure.

66 - You are simply miss-informed.

The UK public deficit directly prior to the global financial crisis and the 13yrs of Labour govt. was completely manageable. The collapse in tax take and the various measures to support employment and maintain programmes that otherwise would have been very costly to remove mid-way, and also to stop the entire banking system from imploding and leaving us in a barter economy have however created this mess.

Fiscal orthodoxy was shown in the 1930's to prolong recession and destroy industrial capacity and ability to trade our way back out of recession, it took another world war and the fear of one (with its stimulus effect) to drag most countries back.

net public sector borrowing until the crisis was roughly half that created by the last Conservative Govt, despite public services being shocking then.

The VAT rate is going to have to go up to about 22.5% over the next 2 years to make any sense of the Treasury numbers with all this post-election dealing and 7 year of strong uninterrupted growth and £67bn worth of cuts or for comparison sake Two Education systems a year or the majority of NHS. Any giveaways will need to be clawed back, which I suspect is what Labour told the Liberals in negotiations.

To pretend that the last government have done anything but be prudent, borrowing to invest (we did have the most awful national physical infrastructure), paying down national debt built up by unsustainable supply-side economics tax cuts. Worst of all is you see a civil servant the governor of the Bank of England licking the boot of his new master, such a coincidence he is being offered more power in the worlds largest financial centre, this PM appointment needs to be controlled effectively if he is to get as much power as has been implied by the Tories.

sorry meant 66.

Get VAT increased asap. 2.5% won't make a ha'porth of difference - it didn't make any real difference when it went down or since it went back up in Dec'09. Provided it doesn't hit basic living items then what's the problem? If you can afford a new car then you can afford the additional 2.5%. It doesn't matter if you can afford a £1000 suit or a £150 suit, the extra 2.5% is not going to stop you getting that suit. It's quick and easy for the Gov't to collect - all of the apparatus is in place to do that, so there is very little additional cost in collecting it.

There is also plenty of room within publicly funded bodies just by ensuring that such organisations spend the money as if it were their own. A recent hospital appointment of mine is a prime example - I received 5 letters, 4 from the same office and all sent first class. By my conservative estimates this is costing that single department of just one small hospital £17,712 per annum! Would any small private enterprise be prepared to spend such sums to communicate with just 36 customers per day? NO! As a small business owner that would horrify me. So why should a publicly funded body demonstrate such largesse with our money? Because it isn't 'their' money and because of incompetence, poor organisation and rank bad management. Why can't email be used for those who opt to receive appointments in that fashion? It's free to all intents and purposes. How many hospitals are there and how many departments do each of them have? It just beggars belief.

Based on that example I dread to think what else could be pruned without the slightest impact on any individual patient.

74. At 10:42am on 13 May 2010, martin wrote:
I haven't read all comments , so please forgive me if this has been stated before. I believe that the following is correct. If I work and earn £12000 I will pay NI on all my income over the lower earnings limit.
- - - - -
That's not true anymore

NI payments become due from the Primary Earnings threshold, which is £110 per week. (The LEL is currently £97 a week and this limit is still used for benefit purposes)

https://www.hmrc.gov.uk/rates/nic.htm

Regarding the increased tax allowance I wonder how much of this will be cost neutral for govt for those on tax credits. Afterall surely if take home income for those on low pay goes up due to higher tax allowances the benefits side will go down. Which brings me to the system - why do we collect tax from some just to give it back to the same people who paid the tax as tax credits? Seems overly complex and unnecessary when tax coding to employers are far more simple to administer. I am also aware of several employers who have problems getting employees to work overtime due to the adverse effect of tax credits. Taking on new employees to expand is out of the question due to legislation and complexity. Therefore the companies are losing business, employees are being held back on their earnings and more importantly the country is losing wealth generation. Aterall it is the private sector that all economists agree will power us out of recession by producing more revenues.

Overall I think the Lib Dems might have an interesting point here. Time will tell.

#15. Sadly I feel the Tories for all their blustering on change still have the same hatered for anyone that works for the state. I fear for my job and the future.
I have not felt this uncertain since leaving school and looking for a job under the last Tory government. To me it feels like we are sleepwalking into a very dark period both socialy and economicly.
Only time will tell I expect.

#21. You have every right to be afraid Gareth, as a Civil servant myself I'm expecting very harsh times ahead, at worst redundancy, poverty and the scrapheap as I'm nearing fifty and far from financially secure. Am I scared, hell yes you bet I am but let's be brutal here, the Tories think of public servants as a cancer on their profligate ways

So what suggestions do you have guys? Why are you already blaming the new government rather than the old government that let spending get out of control?

Seeing as you can see the tough times ahead in the public sector, can I assume you have both been actively persuing private sector employment for the last few months?

Its tough out there, but at least we are in a dynamic economy. If you keep your attitude positive and your skills relevant, there is still hope!

#86

I think you are right about changing CGT and unintended consequences.

When the most recent CGT 'rules' were implemented in April 2008, the various FTSEs ended down in April compared to the start of the year, a most unusual situation. This was almost certainly associated with profit taking before the change took place.

Perhaps end of April 2011 will be a good time to buy something, anything 'in a market'.

I'm sorry but I'm getting a little ticked-off with the sense of entitlement coming from those who work in the public sector. Do none of you recognise that you are a bloated liability that must be cut and trimmed down to size? Even before the recession - during the "good times" - this country ran at a deficit, borrowing money we didn't have to chuck at the NHS (hoping some of it made a difference) and yourselves. A blatant attempt by Brown to buy votes, I can guarantee that few of you turkeys voted for Christmas. The quite staggering increase in the size of the public sector was unsustainable and temporary. The private sector has taken a kicking and now it's your turn. I feel for anyone losing their job but if you can't recognise that most of you have been lucky to have one for the past 10 years then I don't know what else to say.