Was the pre-budget report satisfactory?
Labour has to call a general election by June 2010. This is only 6 months away so for labour their Pre-Budget Report was vital to try and win back supporters. However, given the high level of scepticism they had to keep the report realistic as well as people pleasing. Was this balance achieved, has the Pre-Budget report established a way forward for the economy?
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Increased spending on the police, health and education systems
During a recession it would be easy for the Government to cut back on taxes and decrease spending on the public services. However, the Chancellor has enunciated a way forward whereby more money can be spent on these vital services; an increase in National Insurance contributions. There are three levels of tax, VAT, NIC and income tax. Income tax increases always cause groans among the public as they are often too much of a person’s entire income. VAT is a tax we pay on almost all the products we buy. National Insurance only takes a small amount of our income and is used specifically for our benefit, ranging from public services to our pensions. It will be raised by 0.5% from April 2011 and even then it will only apply to those earning over £20,000 per annum. The money would then be used for funding vital services such as maintaining the number of police officers we have on the front line, something we were worried they were planning on reducing.
Darling finally took a stand against bank bonuses
Perhaps the greatest success of the budget was that the Chancellor finally took part in some bank bashing and issued in his Pre-Budget Report a one off tax of 50% to any bonus over £25,000 paid to employees by the banks themselves. In this way, the Government is discouraging the banks from giving bonuses in the first place, and not harming those who have merely been given the bonus. This was a politically great move and something that a lot of people wanted to see occur.
There are two ways of criticising this policy from two different perspectives. It can be argued that this is only a one off tax for this year, so banks could pay the tax of 50% of the first bonus and will not pay the tax next year. Banks could then, offer small bonuses this year and offer higher payouts next year. These critics would argue that the tax measures do not go far enough.
Another way of criticising the point would be to say that this was a people pleasing measure, designed to win votes that will actually harm our economy in the long run.
How can our economy recover when those who are in the centerfold move to other countries where they will not be taxed. If we need good bankers, we need good bonuses.
Measures were taken against the rich tax evaders
It has for some time been known that the highly paid are in the best position to avoid tax. They are in high positions and as such, they gain employee benefits in any way they can that does not mean they get taxed more for it. This is why a vast majority of the well paid, including bankers, got large amounts of employer invested pension funds. It was a way of positing money to employees without the employees having to pay tax on it. The Pre-Budget report has put an end to this and has stated that these employer contributions to the pensions have to be taxed for people earning over £130,000 a year. This is a tax move that will not only create more revenue, prevent sly avoidance of tax and make the general public happy that those earning vast sums of money are not benefitting unfairly from the system.
Though in principle this move is both economically advantageous, politically sound, and designed to appease the working-class bedrock upon which Labour has traditionally built its support base; these measures are weak in reality. £130,000 a year is ridiculously large amount for this high-earner tax to be implemented at and thus fails to redress the wealth imbalance in a way that more stringent taxation within a more leftist approach could have. Another classic example of Labour talking big on an issue and then avoiding making a difficult decision that could produce deeper social and economic change. This policy may hold the centre ground but who wants a centralist party during unrest? Answer, nobody.
modernisation of Britain's Broadband availability
Whislt the Government have always put forward targets and measure srelating to modernisation of Britains access to internet, often we have all wondered how such fanciful plans would be implememnted. The Chancellor has now clarified how he intends to modernise Britains broadband; a set rate 50p tax on phone lines. This is the working of a true Labour Government, everyone paying a little in order so that everyone can enjoy the benefits of super internet access.
This is not a true Labour Government policy. The aim was to provide everyone with 2MBs Broadband by 2012, most would agree that this is sufficient for most internet tasks. However, the 50p broadband taxed would be placed upon phone lines for an additional aim. This is an additional £6 a year to have a phone line, regardless of whether you have broadband or not. By 2017 the aim is to have 90% of households with super speed broadband. The Government try to say it will create jobs in technology, but where is the benefit of 90% of UK households having super speed broadband. Surely this will only encourage large scale piracy of film and music.
Prospects for our youth increased
Whilst we are facing a recession with a characteristically high unemployment rate, the Government have put forward a scheme to keep our youth motivated and optimistic about the future. Anyone under the age of 24 who has been unemployed for 6 months, lowered from 12months, will be guaranteed a training scheme or a job placement.
This is a great move as it allows our youth to feel positive about their future, which is hard right now considering they are growing up through a recession. The optimism should then be converted to cash in our economy once these youth do start working.
How can offering 18-24 year olds guaranteed employment after 6 months of unemployment be motivating? Surely it will teach our youth to be lazy? Surely being unemployed right now, when 2 million other people are facing the same drama is good for our youth. They will learn that in order to get a job they have to try hard and be the best candidate on the sheets. It will force them to try harder and develop their own writing and social skills. By guaranteeing a training scheme or job, the government are giving the youth an easy ride, which is not what is good for our long term economy. When this policy ends, or they pass the age of 24; how will they be able to find a job if they expect jobs to just fall into their laps?
Still too optimistic about the short term future.
Darling expects a return to growth in fourth quarter of the financial year. He has stuck to his original forecast of growth of 3.5% in 2011-2012. This is considered much too optimistic in the City. Howard Archer, the chief European and UK economist at IHS Global Insight, is one who does not share Darling’s optimism. He looked at the disappointing flat rate of growth in October and stated that this was not promising for the fourth quarter. The difference here is that the Pre-Budget report made no mention of why they were positive, just that they were positive. This was the Government merely trying to raise public confidence in the Government, but without the statistics to back such optimism up, surely our recession bound Labour skeptic public will not feel the same optimism.
VAT being restored at 17.5%
Whilst this might be the way forward in Darling’s optimistic eyes, but whilst we are still in the hardship that we are this is not a good move. Retailers are not happy about it, consumers are not happy about it and therefore the Government should not be happy about it. They have managed to upset the two sides of consumerism with this VAT move and that is not good when there is an election looming in June 2010.[[http://debatewise.org/debates/1482-it-is-too-soon-for-the-vat-rate-to-be-increased-to-17-5]]
The tax on patents will harm the economy in the long run
As part of the Pre-Budget report, Darling has stated that there will be a new corporation tax on income earned from Patents in the UK totalling at 10%. Patents are the intellectually property rights held over an invention. A vast amount of research and money gets invested into developing invention which companies can patent and earn royalties for the use of that invention for 20 years. However, where would the motivation be if new taxes are imposed on those royalties? The amount that firms invest in their patented product alone is enough. The research and development involved is good for our economy in terms of hiring bright individuals. If we start charging a tax on such procedures, these innovators will move their research teams and patent their product elsewhere.
non-sensical random lowering of bingo tax?
One of the shockers of the Pre-Budget Report 2009 is the lowering of the duty levied on bingo winnings from 22% to 20%. With little justification or logic offered or seen behind this, it is a rather random insertion. We are going through a recession; public borrowing is at its highest in 100 years , surely novelty taxes as these need to be raised not lowered, what good will the measure do to our economy? The reality is, none. The Government have inserted this in to win old voters who traditionally vote for the Conservative Party. However, the move is so obvious and bad for the economy that no voters will be won over on this point, not even the old bingo players
The lowering of the bingo tax is not actually that random. In the April 2009 budget this tax was raised from 15% to 22%. This caused much outrage among the bingo community. They argued that the bingo industry lost over £30million due to people being turned away from bingo because of this additional tax. Given that bingo is a harmless form of entertainment compared to other leisure activities that are heavily taxed on, and given that the industry has suffered due to the significant increase in tax last April, it is not such a random move the lower this tax by 2%.
£5 billion cutting in spending, helped by reducing residential care,
The saving is to be made by ‘supporting’ the elderly so that they can remain in their own homes rather than to be taken into residential care. However, this can only have one of two consequences for the elderly. Either they will become a burden on fellow female family members. Often care in the community really means female relatives having to sacrifice their time to look after their elderly relatives. This would result in many people having to take time off of work, which in a recession is simply not tenable.
The other consequence is that social services would need to take the elderly on. Given that this is supposed to be a measure to save money I cannot see the Government investing more into social services. Then how can we allow the same social workers like that of Baby P look after our dear old granny?
It seems like a bad scenario all around but the Government try to soften the blow to the elderly by offering them a 2% discount on their bingo tax!
Unfortunately the report did not go into enough detail merely stating that there would be cuts in residential care by trying to support the elderly in staying in their own homes. It said no where that there would be no additional spending on the social service system to care for these elderly folk. The savings can still be achievable with the inclusion of the cost of more social workers. The cost of running a residential home would be a lot more than the social workers that would need to be employed to look after the same amount of elderly people in their own homes.
Additionally, it is a great show of Labour wanting to support human dignity. No elderly person wants to leave their home for a residential home. Often it is the families who try to impose this on elderly relatives. By making a constructive effort to keep the elderly in their own homes, the Government is paying homage to the wishes of the elderly.
it was a political survival plan, not an economic recovey plan.
By admission of the Government's own figures, in 5 years time, public borrowing will climb to £1.47 trillion, more money than most could ever imagine. Whilst the Pre-Budget Report stated this and made tiny cuts, and gave tax back on trivial things such as Bingo winnings and boilers, they seemed to escape the issue of how our economy is to recover. It seemed that their answer was to borrow more money, but this is the attitude that lead to the credit crunch in the first place; "I cannot afford it now, so I will borrow a larger sum than I could possibly imagine paying back".
The pre-Budget Report's only triumph was in pleasing the public by bashing the bankers and giving pensioners tax cuts. The pre-Budget report was more about the interests of the political party than the public at large.
What do you think?