Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Palladium Surges above $2,400. Is It Sustainable? - 27th Jan 20
THIS ONE THING Will Tell Us When the Bubble Economy Is Bursting… - 27th Jan 20
Stock Market, Gold Black Swan Event Begins - 27th Jan 20
This Will Signal A Massive Gold Stocks Rally - 27th Jan 20
US Presidential Cycle Stock Market Trend Forecast 2020 - 27th Jan 20
Stock Market Correction Review - 26th Jan 20
The Wuhan Wipeout – Could It Happen? - 26th Jan 20
JOHNSON & JOHNSON (JNJ) Big Pharama AI Mega-trend Investing 2020 - 25th Jan 20
Experts See Opportunity in Ratios of Gold to Silver and Platinum - 25th Jan 20
Gold/Silver Ratio, SPX, Yield Curve and a Story to Tell - 25th Jan 20
Germany Starts War on Gold  - 25th Jan 20
Gold Mining Stocks Valuations - 25th Jan 20
Three Upside and One Downside Risk for Gold - 25th Jan 20
A Lesson About Gold – How Bullish Can It Be? - 24th Jan 20
Stock Market January 2018 Repeats in 2020 – Yikes! - 24th Jan 20
Gold Report from the Two Besieged Cities - 24th Jan 20
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

UK Budget 2010 Analysis, Consumers, Public Sector and Benefit Claimers to Carry the Weight

Economics / UK Tax & Budget Jun 22, 2010 - 08:39 AM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis ArticleGeorge Osbourne delivered his first budget flanked by Liberal Democrats Nick Clegg and Danny Alexander on either side, and clearing the uncertainty of the past 6 months which allows business's and individuals to make long-term decisions. The primary objective of the emergency budget is to address the unsustainable £156 billion annual budget deficit that risks bankrupting Britain, in this respect the budget appears to have succeeded in projecting that over the term of the parliament this deficit will be reduced to £20 billion per year.


In total the budget took £40 billion out of the economy or 3% of GDP by means of £8 billion of net tax rises and £32 billion of spending cuts.

VAT Rise to 20%

VAT will rise from 17.5% to 20% effective from 4th of Jan 2011, I had forecast for it to come in on the 1st of Jan 2011. VAT will raise approx £13 billion. The VAT hike will result in an inflation spike as I have been warning off for the past few months (George Osbourne's Wage Inflation Price Spiral VAT Increase ). Now it is clear that the VAT inflation spike will start in January 2011 inflation data.

It was only a couple of months ago that the Lib Dem Leader and Coalition partner Nick Clegg was warning of the Tory VAT bombshell.

Spending cuts of 25% on non ring fenced budgets

The Government intends to target 25% of spending cuts across non ring fenced spending departments to culminate in an annual spending cut of £32 billion. However spending cuts of 25% are just not possible in my opinion, 15% is achievable but 25% ? This means that there exits an approx £13 billion annual hole in the governments plans or about £50 billion over the 4 years from 1st April 2011, which means higher borrowing and deficits than forecast, which implies that there could be further tax rises in future budgets. At least 500,000 public sector jobs will go and possibly as many as 700,000, the problem here is the culture and ethos of public sector workers means that most are unemployable in the far more flexible private sector unless they change their mindset.

Public Sector Pay Freeze

Public sector salaries of above £21,000 per annum will be frozen for the next 2 years, originally it had been assumed that pay from £18k would be frozen.

Public Sector Pensions Liabilities

Whilst the press focuses on the public sector net debt of £850 billion, however the bigger elephant in the room is the Public Sector gold plated pensions liability of more than £1 trillion that already requires tax payers to fill the gap of near £10 billion per year of that between contributions and benefits that is destined to continue mushrooming ever higher that ultimately risks bankrupting Britain. The bottom line is that the public sector workers contribute 50% less than the pensions provisions made availabel to them, the gap being left for future tax payers to fill. The chancellor announced that John Hutton would provide an interim report on the public sector pensions crisis by September 2010.

Indexation Switch from RPI to CPI

The new government is using a slight of hand to to switch from the higher RPI inflation index (5.3%) to the lower CPI inflation index (3.4%) in across the board indexation of spending commitments, tax and benefit measures to save an approx £6 billion per year. However this is just another effect of masking the real rate of inflation from the public which the RPI at 5.3% more accurately reflects.

Capital Gains Tax

CGT will rise for higher rate payers from 18% to 28%, and remain at 18% for basic rate tax payers. There were fears of CGT rising to 40% or 50%, which would hit long-term investment as well as reduce market transactions and hence reduce tax revenues.

Corporation Tax Cuts

Corporation tax will be cut by 1% per year for the next 4 years from 28% to 24%. Small companies will see their tax rate cut from 22% to 20%. The negative is that capital allowances are being cut from £100k to £25k.

Bank Levy

The bank levy will raise £2 billion per year. The banks have been hit less than expected as a tax of £5 billion had been anticipated.

Tax Credits

The Tax credits payments ceiling will be cut from families with earnings of £50,000 to £40,000, which will put families in this bracket at least £520 per year worse off.

Basic State Pension to Rise in Line with Earnings

The state pension will now rise in line with earnings or inflation, which ever is higher, or by a minimum of 2.5% per annum.

Housing Benefit Capped at £400 per Week

Housing benefit is one of the most abused benefits of the welfare system that effectively allows people to choose not to work and live off the state in perpetuity, a cap at £400 per week still means that this single benefit can reward those that choose not to work to the tune of £20,800 a year towards housing costs which is more than the average gross salary of most of the people outside of London. The Government should have gone much further in lowering the maximum amount of Housing Benefit to reduce the amount of fraud that takes place that runs in the several billions each year.

Child Benefit Frozen

Child benefit will be frozen at current levels for the next 3 years. There had been fears of mean testing.

Disability Benefit

A number of Labour government reports over the years had concluded that as many as 1/3rd of Disability Claimants are fraudulent, though Labour never did anything about this. The new government is to implement medical assessment from 2013 to address this mega-fraud.

Annual Income Tax Free Allowance Raised

The income tax allowance has been raised by £1,000 to £7,475 to take some 800,000 people out of the tax system and as part of the objective to work towards the Lib Dem goal of a £10,000 annual tax free allowance.

Comments and Source: http://www.marketoracle.co.uk/Article20512.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Florence O'Donnell
02 Aug 10, 12:19
UK budget

has the budget had any effect on the UK already and what is the predicted effects?


Nadeem_Walayat
02 Aug 10, 12:49
uk budget economy

My next in-depth analysis within the next 2 days will seek to address this Issue.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules