So Has Plan A Been Ditched?

The credit rating agencies are likely to fall for it – Fitch has warned that the UK may lose its triple A rating in the next two years – but does Goerge Osborne’s Budget make much sense, if he’s wedded, as he says he is, to his Plan A of stiff public spending cuts?

There are some substantial giveaways in the Budget – the top rate of tax cut from 50 percent to 45 percent, an increase in the personal tax allowance, and the raising of the income ceiling  on child benefit, etc. And, of course, there’s the cut in corporation tax.

The Chancellor says this is a Budget on the side of aspiration and enterprise. Certainly, to attract foreign business to the UK, and to encourage domestic firms to remain located in the country, the corporation tax reduction is a good idea. The cut in the top rate of tax is likely also to encourage the super-wealthy to remain.

But how is this to be paid for? The Chancellor talked vaguely about clawing back another 10 billion pounds in welfare benefit cuts annually but absolutely no details were provided.

One slice the of the population that doesn’t come out of this well is the elderly. The phasing out of the age related allowance for pensioners is going to hit them. I can’t quite see the sense of this.

The UK is facing already a pension time-bomb, as other developed countries are too. UK pensioners and those close to pension age have been hard hit by low interest and annuity rates since the financial crash and now they will lose out on the phasing out of the age related allowance. In short, the government is aggravating the problem that will come with the greying of the country.

So, is this Plan A-? I am not sure the Chancellor has done enough to encourage growth and enterprise with this Budget – a growth that can bring in more tax revenues to cover the giveaways. And neither am I sure this Budget will be as tax neutral over five years as the Chancellor claims it will.

UK Property Prices Drop Even Further

Fine piece, by Mary Ann Sieghart in today’s Independent on baby-boomer selfishness but somewhat over harsh towards the middle aged and elderly by criticizing them for seeing property as a future pension. Of course, they did. The state pension in the UK is an insult and Brown & Co. made an outrageous raid on pension funds that reduced significantly the value of private pensions. Where else were they meant to turn but to property, if they wanted to stay out of penury in their old age?

Coalition Attacks Pensioners and Savers

Steve Webb, Britain’s Pensions Minister, has told the Daily Telegraph that the Coalition is “making changes to reinvigorate a culture of saving”, all part of the government’s plan to raise the retirement age sooner than was expected. Apparently, new figures show that life expectancy in the U.K. is increasing more rapidly than was forecast even just four years ago when Labour drew up its plans to raise, more slowly than the Coalition, the retirement age.

But doesn’t there seem to be a colossal mismatch between what the Coalition has actually been doing on the savings front with all of its talk about reinvigorating a culture of saving?

Following on from Labour – and the same is happening on the other side of the Atlantic – interest rates are being kept so low that inflation is being allowed to eat away at savings.

And the Coalition has clobbered those who are trying to save for their retirements by increasing the Capital Gains Tax on the sale of second homes and shares.

As I noted in an earlier blog posting, about 250,000 British families own a second home and there are one million buy-to-let properties. Many who bought a second home are not wealthy but decided after the Brown government raided private pensions that the best way to help weather their retirements with a little bit of dignity was to invest in property. After all no one can live on the old age pensions the U.K. supplies – that is if they want to avoid penury. So Coalition is punishing the people who are trying to ensure that they are not an increasing charge on the State.

Not content with raising CGT, thousands of British holiday-home owners face losing a range of tax benefits under changes announced in the Budget. From April next year, holiday property landlords will no longer be able to write off “trading” losses from second homes against their tax bill. Capital allowances and capital gains benefits will also go. That will also disrupt the pension plans of tens of thousands of people – many of who based retirement plans on the current tax rules for holiday lets.

So much for reinvigorating a culture of saving! But it gets worse in the Coalition’s obvious undermining of savers. New so-called tax simplification rules being proposed by the Treasury are also going to hit savers and those close to retirement. As economics commentator Ian Cowie has pointed out: “Many members of final salary company or occupational pensions face big annual tax bills and other savers will be prevented from topping up their pensions in the year of their retirement, if the Treasury proceeds with its latest proposals for ‘tax simplification’.”

On top of that the increase in Value Added Tax will leave even less money available to save. When it comes to saving, Coalition deeds are totally at odds with Coalition words.

How Very Un-Tory

Apparently Britain’s new Conservative (?) Prime Minister thinks owning second homes is “not necessarily a splendid investment for the whole economy” and therefore it is okay to raise Capital Gains Tax on the sale of them from the current 18 percent to possibly as much as 50 percent. This is all part of his so-called “fairness agenda” – CGT tax increases will allow the coalition government to take more people at the bottom out of tax altogether – that is to say, he will assist those who didn’t vote for him and kick in the teeth the people he did.

Aside from the electoral risk down the road of doing that – and let us leave out for the sake of this posting the fact that the Tories did not campaign on increasing CGT on second homes or shares – it is hard to fathom the “fairness” here.

About 250,000 British families own a second home and that there are one million buy-to-let properties. Many who bought a second home are not wealthy but decided after the Brown government raided private pensions that the best way to help weather their retirements with a little bit of dignity was to invest in property. After all no one can live on the old age pensions the UK supplies – that is if they want to avoid penury. So Cameron is punishing the people who are trying to ensure that they are not an increasing charge on the State.

No one doubts that Britain’s financial state is parlous but the emphasis must be on spending cuts and not tax increases — that is both a matter of fairness and good economic sense: Britain’s only hope is to grow out of the crisis.

At 50 per cent there will be a devastating effect on people who have bought buy-to-let properties as part of their pension investments.

Also as David Salusbury, the chairman of the National Landlords Association, has pointed out the CGT increase will “act as a barrier to further investment in residential property just at a time when there is an urgent need for more housing”.