Tax

Kiran Stacey

This morning the prime minister’s spokesman was grilled by the Westminster press pack on why exactly the government was putting in place a cap on tax reliefs when it could reduce charitable giving.

This is the explanation the spokesman gave:

The reason was that certain individuals in this country on very high incomes are exploiting some of these reliefs to reduce their tax burden.

But surely the whole point of offering tax reliefs on charitable donations is to encourage wealthy individuals to give donations by allowing them to reduce their tax burden? The PM’s spokesman explained that it was not just use, but abuse of these reliefs that was concerning the government: Read more

 

Welcome to the FT’s rolling coverage of the UK Budget.

By Kiran Stacey at Westminster and Gordon Smith, Michael Hunter, Darren Dodd, Tom Burgis and Ben Fenton on the FT news desk.

All times are GMT.

16.45 So, that is about it for the live blog. The main FT coverage can be found in the usual place.

We thought we would leave you with a small image of what life in the Financial Times London newsroom is like on Budget Day. Below, you can see Chris Giles, economics editor, briefing the rest of us on what it all means. This picture was taken less than two minutes after the Chancellor sat down at 13.29.

So, from the FT live news desk, enjoy digesting the ramifications of the 2012 Budget, whether you are an outraged pensioner, a relieved 1-percenter or the Chancellor of the Exchequer. FT Live Blogs will be back just as soon as something big enough breaks. Goodnight.

Chris Giles briefs the Budget team on what it all means. He is the figure in a light grey shirt immediately below the left-hand TV image of George Osborne.
Chris Giles briefs the Budget team on what it all means. Chris is the figure in a light grey shirt immediately below the left-hand TV image of George Osborne.

 

16.25 John Authers and Martin Wolf parse the 2012 Budget

16.06 The top trending phrase on Twitter in the UK at present is #grannytax.

And one of the main users of Twitter, Lord Prescott, has his say on the Budget.

[blackbirdpie url="https://twitter.com/#!/johnprescott/status/182489902074703875"]

16.01 The FT’s Christopher Cook tweets:

[blackbirdpie url="https://twitter.com/#!/xtophercook/status/182490962516393984"]

15.57 This was a budget, opines the FT’s Philip Stephens
that was in part “about George Osborne’s ambitions to establish
himself as David Cameron’s heir apparent”.

 

The chancellor talked about a Budget to put Britain back to work, but

the measure most likely to stick in the public mind was the cut from

50 per cent to 45 per cent in the top rate of income tax. It marked a

tilt to the tax-cutting right that he hopes will build his support on

the Thatcherite wing of the Tory party.

 

 

15.52 Podcast time.

 

15.48 Our colleagues over at FT Alphaville have been going through the
Budget documents and have found the official issuance plans for the
Osborne super-long bond.
The question, it seems, is not how long the bond should be, but how
big…

 

 Read more

Kiran Stacey

The quad - David Cameron, Danny Alexander, George Osborne, Nick Clegg

Tim Farron, the Lib Dem president, told me yesterday:

I suspect that we are going to see a Budget which has got more Liberal Democrat stuff in it than Tory. The amount of money being returned to individuals will go overwhelmingly to middle and lower income earners.

He’s right, to the extent that by far the biggest spending measure announced by George Osborne tomorrow will be the increase in the personal tax allowance to around £9,000 – a move likely to cost around £3.3bn. Read more

Kiran Stacey

The Lib Dems have made raising the personal tax allowance (what you can get paid without paying income tax) one of their flagship policies. So when George Osborne says at the Budget in two days’ time that he will raise that allowance beyond inflation, it should be a major victory for the junior coalition party.

It is interesting therefore, to take note of a piece of research published today by CentreForum, a think tank with close ties to the Lib Dems, showing that raising the tax threshold* to £10,000 (the eventual aim), would not be especially progressive. It fares especially badly when compared to an alternative proposal, to lift tax credits instead, which would cost the same amount of money.

The think tank produced the following table detailing who benefits from either move, which paints the difference in stark terms: Read more

Elizabeth Rigby

Labour MP Sharon Hodgson was given short shrift from the prime minister today when she asked David Cameron whether the following statement was true:

The problem is policy is being run by two public school boys who don’t know what it’s like to go to the supermarket and have to put things back on the shelves because they can’t afford it for their children’s lunchboxes. What’s worse, they don’t care either

The prime minister told the MP for Washington and Sunderland West to celebrate the fact Nissan is building a new car in Britain rather that focusing on “whatever nonsense” she had read out.

That “nonsense” actually came from his own benches in the form of the rebellious and outspoken Nadine Dorries – she made the comments to my colleague Kiran Stacey this week when asked to discuss child benefit. Hers is not a lone voice: Mark Pritchard, MP for the Wrekin, also made similar remarks to the FT about the prime minister a few days ago. Read more

Kiran Stacey

I wrote earlier this week about the options open to ministers for solving the child benefit conundrum.

To recap, the government’s current proposals to axe child benefit for higher earners lead to two problems:

  1. Families with one person earning above the threshold (around £42,000) will lose their benefit, but those with two earning just below it will keep it.
  2. The lack of any tapering means it will become a disincentive to earn a promotion that takes you just above the £42,000 mark.

The most likely answer appears to be that George Osborne will find some extra money to move the threshold to £50,000 instead. But that solves neither issue, only moves the problem higher up the income scale.

But another proposal is floating round the Treasury: to reverse the plan altogether and instead cap child benefit at a certain number of children (most likely to be three). Read more

Kiran Stacey

The government is struggling with two problems arising from its decision to cut child benefit for higher earners. They are:

1) The fairness issue. Under the current plans, a family where one person earns £43,000 and the other person receives nothing would lose the benefit, but one where both people earn £42,500 still received it.

2) The cliff edge. If you earn just below the higher-rate threshold, you actually lose money by getting a small pay-rise, because you will suddenly lose all your child benefit.

Various solutions have been floated to these two problems.

The first is that you could lift the threshold for losing child benefit to £50,000, essentially making sure it hits a smaller, wealthier section of the population. But apart from the money it costs, this actually solves neither of the above problems. Ministers might see it as a good and simple way to generate some more positive feeling around this policy, but it doesn’t fix the major issues at all.

 Read more

Kiran Stacey

I wrote this week about talks between the Tories and Lib Dems about the possibility of lowering the cap for how much workers can put into their pension pots while still enjoying tax relief.

Since then a couple of pensions experts have got in touch to explain some further implications of the measure, which mean that for two reasons, it could be more controversial than I first realised.

Firstly, I suggested that people enjoying the maximum 50% tax break enjoy a 50p top-up to their pension pot for every £1 they put in.

In fact, the relief is worth even more, because the amount is a tax relief calculated on pre-tax income. So if you qualify for the 50% relief, and put in £1, your tax is waived, meaning that the government has essentially put in 50p of the £1 you put it. Cancelling this for some people would therefore be even more of a blow than I first calculated.

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Kiran Stacey

The Liberal Democrats have a problem. They have staked their colours clearly to the mast when it comes to raising the minimum threshold for income tax to £10,000. Most expect it to be done by the end of the parliament, if not by 2014.

The problem is, this will cost money – £4bn if it’s done by 2015, £5.5bn if it’s done by 2014 – and there isn’t much of it floating around. Lib Dems will tell you they are keen on two options to pay for this: one is to clamp down on tax avoidance; the other is to tax the pension contributions made by higher earners.

Both options are likely to make some kind of appearance in the Budget in March. But it is the latter that raises the serious money, and carries potentially serious risks for the coalition. Read more

Kiran Stacey

When George Osborne told the country last November that he was going to miss the target of eliminating the current structural deficit by 2015, Labour were quick to tell everyone how the chancellor’s economic gamble had failed.

Not only was Osborne having to borrow more to pay for this failure, the opposition claimed that he was even now having to borrow more than Alistair Darling would have done under his deficit reduction plan. That claim was illustrated by this graph, showing the course of borrowing under Darling’s 2010 plan and Osborne’s modified 2011 plan:

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Kiran Stacey

The FT reports this morning that payday lenders (or legal loan sharks as they are also known) have been flooding into the country looking to take advantage of hard-up recession-hit borrowers and the UK’s lax lending laws. Borrowing at rates of up to 5,000 per cent, customers can find their debts escalating at a startling pace.

Even though many other countries have interest rate caps, the UK has never gone down that route. The government has always said it is wary of implementing such a cap in case it pushes poor people into the hands of illegal loan sharks instead.

Labour MP Stella Creasy has also waged a long campaign to get the government to crack down on these companies, and now her campaign is gaining momentum. Read more

Welcome to the Westminster blog’s live coverage of chancellor George Osborne’s autumn statement. One of the most eagerly anticipated statements since the coalition government took power was expected to offer a gloomy prognosis on the economy. Michael Hunter and Gordon Smith from the FT main newsdesk covered the statement live from 12.30 with additional comment from FT colleagues.

14.10 Thanks for joining us. You can find much more, including the full text of the chancellor’s speech and comprehensive analysis, including video interviews, at www.ft.com/autumn2011Read more

Kiran Stacey

Unless there is a last minute U-turn in Whitehall tonight, one of the ways which George Osborne will pay for the various jobs and infrastructure schemes in Tuesday’s growth review will be to squeeze tax credits.

This is a result of protracted bargaining – Osborne wanted to freeze benefits, but the combined efforts of the Lib Dems and Iain Duncan Smith put a stop to that. Eventually the compromise was made that credits would come under the axeman’s blade instead.

So who suffers if these are frozen or cut? Read more

Kiran Stacey

It was an intriguing PMQs today. As I have previously noted, Ed Miliband has begun to find his feet on the economy, and once again used this as his main attack line.

As he has done at previous sessions he chose an obscure policy that has achieved little so far (this time the “business growth fund”, which was set up using money from the Merlin agreement), and used it to embarrass the PM.

As has happened before, Cameron didn’t know what the policy was (in fact at the end, he started talking about the Regional Growth Fund – a different fund altogether). So when asked how many businesses the fund had invested in, he was unable to answer. Read more

Kiran Stacey

Here’s a sentence to set alarm bells ringing: the Department for Work and Pensions is currently undertaking a rather large and important IT project to change the way people can claim benefits.

As part of the project to roll up all the various benefits and tax credits people receive into one “Universal Credit”, DWP is creating a new system that would allow people to log in online, fill in some basic details and quickly calculate how much they can claim. The money will then be paid automatically into their bank account. Read more

Jim Pickard

Is George Osborne planning to scrap the 50p income tax rate? Yes.

But not today, nor tomorrow. Not this month, or next. Not even before Christmas. The move may not even take place next year.

The rate – which applies to those earning £150,000 – has always been classified as “temporary” by the coalition.

In recent weeks the Tories and Lib Dems have played up their differences over the issue. In fact neither think the 50p rate should be removed just now; the internal debate is whether to go for 2012 or 2013.

Danny Alexander insisted last Sunday that scrapping the rate was not a priority – and that lifting the income tax threshold to £10,000 should come first. Tory outriders such as Boris Johnson and Lord Lamont called for it to be axed; but even Lamont said this should happen in 2013. Johnson, meanwhile, is unfettered by the responsibilities of national coalition government. Read more

Kiran Stacey

And now for the big story of the day…

A row has been rumbling since the beginning of the year between cabinet ministers Iain Duncan Smith and Eric Pickles about $4.8bn worth of benefits.

To recap: Last year’s spending review decided the government should localise council tax rebates, giving councils the right to cut rebates for poorer residents and use the money instead on tax cuts or service provision. But that could lead some low-earners paying an effective tax rate of 90 per cent, something IDS worries will undermine the incentive to work that he is trying to create through the single universal credit. IDS wants instead to roll council tax benefits into the universal credit so it reflects claimants’ earning status. Read more

Jo Johnson

The 50p rate – dubbed the “banker tax” – was always going to be a blunderbuss of a weapon with which to punish the guilty men of the UK’s financial services community. But who is it really going to affect? Read more

One of the major issues facing renewables developers in the UK, especially those of onshore wind farms, is fighting through local planning problems. The British public (to generalise) has never been overly keen on the sight of mammoth wind turbines cluttering the green and pleasant land.

Previously, the answer to this has been national policy statements, which set out the national need for new energy infrastructure, so bypassing one test carried out by local planning authorities.

But the problem has never been that local authorities weren’t convinced by the need for nuclear plants or wind farms, but that local opposition was too strong.

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Jim Pickard

This is the point at which I have to wrap up and go for lunch I’m afraid. Here is a link to the live player on the Commons website in case the committee keeps going for a while.

To recap some of the most important points which will provide tomorrow’s headlines:

* Diamond said that the “period of remorse and apology” for banks needs to be over and the City should be allowed to move on.

* He said banks should be “allowed to fail” and that taxpayer-funded bailouts were unacceptable.

* He said he was committed to being responsible on bonuses, though bonuses at Barclays have not yet been set and therefore he couldn’t possibly comment on this year’s round.

* He defended Barclays shareholders from the suggestion that they are “uninformed”, given that they aren’t given a chance to discuss bonus payments before they are paid.

* He claimed not to know how many Barclays subsidiaries are offshore (although Chuka Umunna suggested it was over 300). Nor did he know how much of the tax paid by the bank was via its payroll.

* He reminded MPs that there was an inherent contradiction between being asked to behave responsibly – while being asked to lend more and more by politicians.

12.15: Diamond is asked by Andrew Tyrie whether matters would improve if executives had more skin in the game via unlimited liabilities. Unsurprisingly, this prospect is not very tantalising to the Barclays chief executive.

He cites the example of Stephen Hester, the highly-regarded new head of RBS. Would he have taken that job if he had unlimited liabilities? Ditto the new chief executive of Lloyds Banking Group, Antonio Horta-Osorio.

12.09: Andrea Leadsom, the MP who used to work for BZW, says Diamond has been talking in “fantasy” speak. Read more