It’s all happening now
Detail:
The coalition government is to hold its first Budget on June 22; a newly created Office of Budget Responsibility has been set up to review every public spending decision made since Jan 1 this year; and Chief Secretary to the Treasury David Laws will meet Cabinet colleagues over the next few days to identify £6 billion worth of cuts from this year's plans. The Prime Minister has already announced that he will save around £15 million by cutting the budget for performance-related pay for senior civil servants by two-thirds.
This austerity drive is critical to reducing the UK’s budget deficit of £16bn. If this figure means nothing to you, think about it this way. Britain’s deficit is already the worst since the Second World War and, as a percentage of GDP, could become the biggest in the EU – overtaking Greece. And we all know what a financial mess Greece is in. And its impact on the euro.
If the deficit is not cut swiftly, there is a very strong risk that Britain’s top-of-the-class AAA credit rating could be downgraded. Which, bottom line, means we could see millions of pounds wiped off bond and share prices as well as making the cost of government borrowing more expensive as interest payments would rise. So if the UK’s credit rating is downgraded, we could see another credit crunch or the return of the recession.
So what could be in store at the emergency Budget?
As expected, there is much speculation, but high up on the list is a VAT increase to 20 per cent at the latest by the end of 2011. Such a rise would raise £1 billion a month for the Treasury.
According to the Sunday Telegraph, one of the UK’s largest retail chains, with sales of well over £10bn, is so confident of this impending rise that it is telling its overseas suppliers to start adjusting price tags on clothing and other products to assume a VAT level of 20 per cent. Those products will hit the shops in February 2011.
The consensus is also that the overall tax bill will rise. Capital Gains Tax is expected to rise to a level nearer a person’s main rate of Income Tax. Attention is also thought to be focused on investors with long-term share portfolios and buy-to-let properties.
Public sector workers face a pay freeze from next April, and there will be changes to tax credits, and probably rises in duty on tobacco and alcohol.
It’s going to be a tough Budget, and it will probably come wrapped in a lot of Labour bashing and blaming. So start gritting your teeth now.
You know what they say: only two things in life are certain – death and taxes.
This austerity drive is critical to reducing the UK’s budget deficit of £16bn. If this figure means nothing to you, think about it this way. Britain’s deficit is already the worst since the Second World War and, as a percentage of GDP, could become the biggest in the EU – overtaking Greece. And we all know what a financial mess Greece is in. And its impact on the euro.
If the deficit is not cut swiftly, there is a very strong risk that Britain’s top-of-the-class AAA credit rating could be downgraded. Which, bottom line, means we could see millions of pounds wiped off bond and share prices as well as making the cost of government borrowing more expensive as interest payments would rise. So if the UK’s credit rating is downgraded, we could see another credit crunch or the return of the recession.
So what could be in store at the emergency Budget?
As expected, there is much speculation, but high up on the list is a VAT increase to 20 per cent at the latest by the end of 2011. Such a rise would raise £1 billion a month for the Treasury.
According to the Sunday Telegraph, one of the UK’s largest retail chains, with sales of well over £10bn, is so confident of this impending rise that it is telling its overseas suppliers to start adjusting price tags on clothing and other products to assume a VAT level of 20 per cent. Those products will hit the shops in February 2011.
The consensus is also that the overall tax bill will rise. Capital Gains Tax is expected to rise to a level nearer a person’s main rate of Income Tax. Attention is also thought to be focused on investors with long-term share portfolios and buy-to-let properties.
Public sector workers face a pay freeze from next April, and there will be changes to tax credits, and probably rises in duty on tobacco and alcohol.
It’s going to be a tough Budget, and it will probably come wrapped in a lot of Labour bashing and blaming. So start gritting your teeth now.
You know what they say: only two things in life are certain – death and taxes.
By:
Sandra
Date/time :
17/05/2010
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