Pre-Budget Report – the live(ish) blog

15.31. The PBR has just got underway, with Darling solemnly recounting Labour’s received wisdom on how the credit crunch started (nowt to do with us) and being barracked accordingly.

So what with the pre-announcements to the pre-budget report, is there any more to come? Will we see any surprises on top of the pre-announced changes to VAT, the higher rate of tax, vehicle excise duty and the continuance of the 10p rebate? My feeling is that we will. Liberal Democrats were miraculously let off by the Tories’ non-announcement about giving tax breaks to businesses who hired long-term unemployed workers provided they hadn’t made anyone redundant in the last three months and the moon is in the eighth house in conjunction with Saturn and there’s an R in the month. In a radical departure from history, not a bean of our policies was stolen. We can’t possibly be so lucky again. Can we?

15.43 A £20bn fiscal stimulus package – that lucky number. Steal number one. Doom-mongering about the State We’re In, to set up the House for the bad news on borrowing… £78bn in 2008, £118bn in 2009.

15.56. The VAT cut (on the standard rate only) will come in next Monday for 13 months, after which it will return to 17.5%. That’s £2.50 back for every hundred pounds of your Christmas shopping, you lucky little paupers. Say thankyou to Father Brown. (Oh, except on all your food shopping, of course, because food is already zero-rated.) One thing puzzles me – can they put the level back up under EU law? I thought European Directives meant we could only move our VAT rate towards the European consensual level of 15%, not away from it.

16.01. The tax package – yes, there were surprises (to me, anyway). Not something from the Liberal Democrat stable. The reduction of the tax-free personal allowance for earners on £100k-£140k, and it’s removal altogether for earners on over £140k. On the latter that will be an extra tax burden of £1,207 at 2008 levels (actually more, because the personal allowance will be larger next year) per earner, or a neat £100 per month. On the former £100k-140k group the extra burden will decrease down the earnings back to nil. How many of these earners are there? Taking Darling’s figure of the top 2% of the country, that’s 1,200,000 earners each contributing something up to £1,200. Taking the median figure of £600, that raises £720m. Not a massive haul. I wonder why they bothered with that? The higher rate raise to 45% and the half a percent on National Insurance will dwarf it.

16.11. This 0.5% on National Insurance. I smell another 10p fiasco. NI already hits lower earners disproportionately hard, with a current rate of 11% on your earnings between about £6,000 and about £40,000, and then 1% above that. What is this “offsetting” which will miraculously absolve those earning below £20,000 from being hit? Very over-complicated. Can anyone point me to the details of the offset so that I can rip it to shreds?

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27 Comments

  • Richard Gadsden 24th Nov '08 - 3:42pm

    I’m twittering on the hashtag #pbr

  • Richard Gadsden 24th Nov '08 - 4:02pm

    The increase in NICs is a big surprise, as is the big increase in the LEL.

  • Richard Gadsden 24th Nov '08 - 4:08pm

    I thought the LEL change was immediate. May need to do some parsing.

  • Richard Gadsden 24th Nov '08 - 4:12pm

    The full point (half each on employer and employee) on NIC is a huge tax rise – bigger than a point on income tax, for example.

  • Richard Gadsden 24th Nov '08 - 4:20pm

    Nope, you only pay NICs on income above the PET (which is the new name for the LEL).

  • It’s a hellish marriage of Old Labour and New Labour.

    Old Labour – A return to the politics of envy.
    The only changes he’s made to income tax is to take money away from the rich, without any attempt to give it back to the poor by giving them the rate cut that would actually help (in fact what with the extra NI he’s giving low earners a disproportionate tax INcrease). Traditional populist toff-baiting.

    New Labour – Pandering to business and Middle England.
    The VAT rate cut will not affect the low earner. All the things the average person on low wages spends his/her money on will stay the same – food and childrens clothing are already 0%-rated and domestic fuel is discounted to 5% VAT anyway. Tobacco, alcohol and petrol are having their duty increased to compensate for the VAT cut.

    If the 2.5% drop in VAT will have any effect it will be to help businesses selling disgressionary items like electronics, clothing and cars (and then not by much) and it will assist those on middle and higher incomes who can already afford to buy such items and give them a little christmas present.

    I don’t resent letting the comfortably-off have a bit of a breather but surely the priority in a downturn should be the people most likely to suffer – and there is nothing in this PBR for them.

  • Richard Gadsden 24th Nov '08 - 5:09pm

    Details of everything are at The Treasury Website

    The chart I’m looking at (p. 194) shows “Align the NICs primary threshold with personal allowance in 2011-12″ as costing £1,610m pa which is coming out of £2,050m from increasing basic NIC from 11% to 11.5%, £440m for increasing higher NIC from 1% to 1.5%, £2,650m for increasing employer NICs, £170m for self-employed basic rate and £80m for self-employed basic rate.

    The net is £3,780m, which is five and a half times bigger than the £670m from the higher rate tax increase.

    And I was wrong earlier; the threshold increase is delayed to 2011-12 alongside the rates increase.

  • Richard Gadsden 24th Nov '08 - 5:19pm

    Here it is:

    “a 0.5 per cent increase in the employee, employer and self-employed rates
    of NICs from April 2011, alongside an increase above indexation in the point
    at which individuals start to pay NICs – known as the primary threshold – so
    that it is aligned with the personal allowance. This will ensure that the fiscal
    consolidation is broad based, without affecting those over state pension age,
    who do not pay NICs. These changes will be introduced from 2011, when the
    economy is forecast to be growing above trend rates and real incomes are
    growing strongly.”

    p.85

  • Richard Gadsden 24th Nov '08 - 5:29pm

    PT is currently (2009-10) £110pw, which is £5,270 pa

    2009-10 Personal Allowance is £6,475, so that’s the equivalent of about £125pw

    Presumably, that’s what will change, which means an effective NIC cut of £132.55 annually, but then an increase of 0.5% above that.

    My calculations say this evens out at £26,510 above the threshold, ie £32,985 pa, though I’m not taking into account the employer’s NI increases, which is a real “stealth” tax.

  • Clegg's Candid Fan 24th Nov '08 - 5:41pm

    “The net is £3,780m, which is five and a half times bigger than the £670m from the higher rate tax increase.”

    Superficially the leaks made this package sound rather similar to the Lib Dem proposals, albeit with the increases in taxation deferred for a couple of years. But it seems that these increases are quite a bit smaller than the £16bn or so increased taxation on the “wealthy” that the Lib Dems are advocating.

    And at 13 months, the VAT reduction really is very temporary.

  • From the thread here, the employee NI rises look progressive and red-tape reducing (more people out of NI). That’s good, at least.

    The EU 15% is a minimum, not a target: we can raise it if we want.

    One thing to note is the very high tax rate between £100 and £140k. If the tax allowance for 09-10 is £6.5k, then it is worth £2.6k a year to higher rate taxpayers (not £1.2k). Withdrawing £2.6k over £40k of earners is 6.5%, i.e. tax between 100 and 140 will be 40% tax, 6.5% allowance withdrawal, and 1.5% NI, for a total of 48%. That is pretty high, and it seems odd to levy a higher rate of tax for people earning £110k than for those earning £150k.

  • Clegg's Candid Fan 24th Nov '08 - 9:32pm

    “Withdrawing £2.6k over £40k of earners is 6.5%, i.e. tax between 100 and 140 will be 40% tax, 6.5% allowance withdrawal, and 1.5% NI, for a total of 48%.”

    I may have it wrong, but I thought only half of this £2.6K was to be withdrawn for those earning between about £107K and £140K, and the full amount for those earning more than about £147K, with sliding scales for £100K-107K and £140K-147K. It all seems very complicated …

  • CCF: If you are right then the total tax rate for people earning between 107k and 140k is 45.5% and the rate for people earning between 140 and 147k would be 60% (40+1.5+1.3/7). You might be right, but that would be very weird indeed.

    I shall read tomorrow’s FT with interest. (Academic interest that is, as I don’t earn enough for this to matter to me personally!)

  • Clegg's Candid Fan 24th Nov '08 - 10:13pm

    It’s the first bullet point in section 5.8 on page 3 here:
    http://www.hm-treasury.gov.uk/d/pbr08_chapter5_179.pdf

    I agree it seems a very weird way of going about things.

  • CCF: thank you.

    Sadly the para does not seem to copy over, otherwise I would quote it here. Having read it, I am even less convinced that the system makes sense.

    It says that you lose £1 of allowance for every £2 of income. Since each £1 of allowance is worth 40p to a HRT that seems to me to imply a tax rise of 20p per £1 earned, which gives a tax rate of 40 + 1.5 + 20 = 61.5p.

    Also, I am not sure if the personal allowance for NICs is withdrawn, or just the PI for income tax. It is possible that the person earning their first £ over £100k loses 40 + 1.5 + 20 + 0.75 – 62.25p

    This continues until you have lost half the allowance. Since the allowance is c. £6.5k by then, this means that you will pay 40% + 1.5% below £100k, then 61.5% between 100 and 106.5, then 41.5% between 106.5 and 140, then 61.5% between 140 and 145, then 66.5 (45 + 1.5 + 20%) between £145 and £146.5, and then 45% above £146.5k.

    While I agree that exact tax rates for people earning £145-146.5k are not that important economically, the poor design of the system does not reflect well on its authors.

    I particularly liked the chapter title: “Helping people fairly”. Presumably the alternative was “Helping people unfairly”, or perhaps “Hindering people fairly”.

  • Stop press! Big news from the PBR for gardeners! Page 143 of the PBR tells us that the government is going to put out for consultation the idea that the eradication of Japanese Knotweed will qualify for Land Remediation Relief.

    Even as LDVs keenest garden, and someone who has wrestled with JK in my previous garden I find it hard to think that including this line was a good use of PBR paper…

  • Hywel Morgan 25th Nov '08 - 12:55am

    Why with borrowing at record levels do all pensioners get an extra “one-off” payment of £60. AFAICS that goes to all pensioners regardless of income.

    There are pensioners living in poverty. There are also a lot of pensioners who are very comfortably off having benefitted from record stock market growth (augmented by Dividend Tax Credit), high annunity rates and/or the benefits of final salary pension schemes.

    As an example my mother has an income from her pensions (her own and the widows from my dads) greater than I’ve ever earned in a year. She also effectively pays 10% less tax than I ever did as it doesn’t get NI.

  • Clegg's Candid Fan 25th Nov '08 - 9:54am

    I must say I think the Tories have some gall with their complaints about the national debt. OK, so they’re opposing a one-off “fiscal stimulus” of £15-20bn, but what’s that in comparison with a projected debt of £1000bn? The problem is not the one-off stimulus, but the day-to-day workings of government during a recession – and the Tories have dissented from the government’s spending plans only (literally) in the last few days. This trillion of debt isn’t something that’s materialised overnight.

    Surely if the Tories find it so frightening and unacceptable, they should be telling people what they intend to do about it, and there are really only two things that will affect it significantly – cut spending by tens of billions a year, or increase taxes by tens of billions a year.

  • I am absolutely delighted to see that Mr Darling has raised duty on tobacco. Excellent stuff!

  • “The reduction of the tax-free personal allowance for earners on £100k-£140k, and it’s removal altogether for earners on over £140k”

    Surely this is an unambiguously Good Thing (or would be if not for the misplaced apostrophe)?

    The only remotely valid argument I could think of against raising the threshold would be that it would cut taxes for the wealthy as well as the poor, & may thereby reduce revenue.

    Were it to be abolished for high earners, this wouldn’t come up, so an obstacle to a bit of raisery is removed.

    Alix, have I got this right or am I hopelessly out of my depth with all this economy shyte? :)

  • CCF: The Tories are deliberately saying nothing at all. Any constructive suggestion from the Tories would only allow the response, come election time, of “Well, your idea wouldn’t have worked either”.

    So the Tory election plan is simple. Assume Britain will still be in a mess in 2010. Blame Labour. Blame them again. Preach blather about sound money and your need to administer strong medicine. Pretend that you Tories have a special courage and ability to cope with hard times, when the truth is that hard times are here anyway and we have no option but to cope.

    Ignore the fact that back in 2004-2008, Cable would actually have avoided the mess, whereas Osborne would have done no better than Darling.

    Discard the nice face of David Cameron, it is not needed any more.

    It is simple, brutal, totally unprincipled(what would you expect?) and it will probably work a treat.

  • Clegg's Candid Fan 25th Nov '08 - 1:13pm

    David

    The other thing the Tories will undoubtedly do is portray the Lib Dems as Labour’s accomplices in the borrowing/tax bombshell scenario.

    I don’t think the narrative Clegg has been trying to develop really addresses that accusation.

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