Budget 09 LDP
Thursday, April 23, 2009
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Surprise tax hike challenge to Tories 50p top rate creates clear divide ALISTAIR DARLING used his Budget speech yesterday to draw the battlelines for the next election by slapping a new 50p tax rate on high earners. The Chancellor sprang a surprise by revealing the top rate for those earning more than £150,000 would be higher than the previously announced 45p and that it would take effect from next April – one year earlier than planned. With the 50p rate likely to be in place before the next general election, expected in May next year, the move was designed to create a clear “dividing line” with the Conservatives. Last night, the Tories said that reversing the rise would “not be a priority”, but keeping it in place will horrify the party’s rank-andfile. The new 50p rate triggered warnings of “a 1970s-style brain drain” if top-earners flee abroad, but Mr Darling insisted that those “who have gained the most
BY ROB MERRICK
Political Correspondent should contribute more”. However, the tax hike – plus further pain for high earners who will lose all personal tax allowances and some pension tax relief – failed to distract attention from the desperate state of the UK economy. Mr Darling tore up optimistic predictions made only last November to admit the economy would shrink by 3.5% this year – more than three times the 1% forecast then. Public borrowing will soar to a record £175bn in the current year – or 12.4% of economic output – because of a toxic combination of falling tax receipts, higher spending and the cost of bank bail-outs. Mr Darling’s predictions that growth would return by the end of the year, and reach 3.5% in 2011, were quickly condemned as wildly
Chancellor Alistair Darling, watched by Prime Minister Gordon Brown, delivers yesterday’s Budget speech in the House of Commons optimistic by the Conservatives and many experts. The Chancellor struck a surprisingly upbeat note, insisting that – despite the deepest recession since the Second World War – there were “good grounds for confidence”. But Tory leader David Cameron said the Budget had laid bare the “fundamental truth that all Labour governments run out of money”. Mr Darling also insisted his package would “protect investment in schools, hospitals
Creating clear dividing line with the Tories
and other key public services”. Mr Darling announced a £1.7bn job creation scheme, to create 250,000 jobs and ensure young people hit by the recession are not abandoned to become a “lost generation”. There was an extra £200m for college rebuilding projects, which may offer fresh hope to five schemes put on hold in the region. As expected, Liverpool missed out on extra spending power for two pioneering “city-regions” – a prize awarded to Manchester and Leeds.
Region’s motor firms welcome scrappage plan
The scrappage plan could help firms such as Vauxhall, which has a plant at Ellesmere Port
THE Chancellor used yesterday’s Budget speech to confirm plans for a car scrappage scheme. The new scheme is designed to kick-start car sales which have more than halved in recent months, in the wake of the credit crunch. Motorists will be able
to trade in cars that have been on the road for 10 years or more for £2,000 against the purchase of a new vehicle. The measure follows the introduction of similar scrappage schemes in France and Germany. The announcement received a cautious
welcome from the car industry. A Jaguar Land Rover spokeswoman said: “We welcome measures that will help stimulate demand for cars. Critically for us, that includes access to consumer credit and actions to improve access to commercial
finance and liquidity in the supply chain. “We have seen European governments introduce scrappage schemes, which have had a positive impact on demand, but generally it’s limited to the small car sectors. We expect the UK scheme will have a very limited impact on
premium manufacturers.” A spokesman for Vauxhall welcomed the move, and said Vauxhall was now working out how to introduce it into its UK showrooms. He said: “This is about generating footfall to showrooms in the short and medium term.”
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DAILY POST Thursday, April 23, 2009
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Darling increases tax Duties rise on alcohol, tobacco and petrol THE Government increased alcohol duty by 2% in a move that angered the beer and pub industry, which had called on Mr Darling to scrap plans for the tax rise. The UK pub industry is already under great pressure, with pubs closing at an average of 39 a week. The British Beer and Pub Association (BBPA) and the Campaign for Real Ale are running a campaign to “Axe the Tax”. The BBPA said yesterday’s increase would mean an extra 5p on the average pint of beer.
The rise in alcohol duty was implemented at midnight, while tobacco duty also went up by 2%, starting at 6pm last night. Motorists, who have seen petrol pump prices slide back up toward the £1 a litre mark of late, will face further fuel hikes in future months. Fuel duty will increase by 2p a litre in September, and there would be further rises of 1p a litre for the next four Aprils. Mr Darling said these measures would raise more than £6bn by 2012.
Darling hits top earners with 50p tax rate THE Budget hit top earners with a new 50p income tax rate and the withdrawal of personal allowances. The move broke Labour’s 2005 General Election manifesto pledge, which said: “We will not raise the basic or top rates of income tax in the next Parliament.” Alistair Darling increased the 45p top rate he announced in his Pre-Budget Report in November, even before it had been introduced – and said the new 50% tax band would be brought in for those earning
more than £150,000 a year early, from next April. That means the rise will almost certainly take effect before voters go the polls to choose the next government. Mr Darling also said he would now “fully withdraw” the benefit of the personal allowance from next April. Sean Drury, at PricewaterhouseCoopers, said: “The UK will rank 18th among the G20 economies in terms of income tax and social security rates for senior executives, based on current rates.”
Chancellor Alistair Darling faces the world’s press as he leaves 11, Downing Street
Picture: PETER MacDIARMID
Pensions tax relief cut for high earners
Plans to stimulate housing market
£5bn boost for trade credit insurance
THE Chancellor announced plans to restrict tax relief on pensions for people earning more than £150,000. Alistair Darling said from April, 2011, the amount of money the Government contributed to the pensions of high earners through tax relief would be gradually tapered so it was the same as the 20% rate the majority of people received. He said it was important to encourage people to save, but he wanted to “address the anomaly” which saw a tiny proportion of workers
THE stamp duty holiday on properties costing up to £175,000 has been extended until the end of this year in the Chancellor’s Budget. Mr Darling said the exemption meant that 60% of homebuyers would not be liable for the tax. And he also announced £500m of extra financial support to kick-start building on housing projects which have stalled because of the credit crunch. This includes a £100m package that will allow councils to build stocks of
A SCHEME providing up to £5bn of additional trade credit insurance to help exporters was announced in yesterday’s Budget. The measure is aimed at helping to mitigate cash flow constraints caused by the withdrawal of trade credit insurance cover. UK firms will be able to buy six months’ “top-up” insurance from the Government after May until the end of the year, if credit limits on their UK customers are reduced. The move follows growing
taking a large slice of the money the Government gives to help people save. Exact details were not available, but it is understood that people earning up to £150,000 will still get 40% tax relief, while those earning more than £180,000 will get just 20%, with the level of relief tapered for those earning between these amounts. Instead of high earners only having to save £60 for every £100 they contribute to a pension, they will now have to save £80.
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new energy-efficient housing. The Government also announced that it was allocating an additional £80m to HomeBuy Direct, its shared equity mortgage scheme which aims to help first-time buyers get on to the property ladder. Other measures to help homeowners announced in the Budget included increased support for mortgage interest payments for people who had lost their jobs and were looking for work.
concern from businesses that reductions in the value of insurance cover created pressure on suppliers to shorten payment terms. Business Secretary Lord Mandelson said it will provide much-needed breathing space. Nick Starling, of the Association of British Insurers, said: “By basing its proposals on the risk assessments carried out by insurers, the Government has endorsed the need for the market to judge and price risk.”
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DAILY POST Thursday, April 23, 2009
LDP Budget 2009
burden on top earners Chancellor drives a stake through the heart of New Labour, argues Rob Merrick
W
HEN Alistair Darling announced, last year, that he was slapping a 45p tax rate on the rich, many said it spelt the death of New Labour. If so, then yesterday’s dramatic Budget – with its even higher 50p tax rate together with plans to raise an extra £7bn a year from high-earners – was a stake driven through its heart, prior to a spectacular funeral pyre. Oh, to be a fly on the wall of Tony Blair’s Buckinghamshire mansion today, or wherever the former Prime Minister is currently tearing out his hair. That, surely, will be the reaction of the New Labour founder and torch carrier to a Budget that immediately sparked memories of Denis Healey’s famous pledge to “squeeze the rich until the pips squeak”? Depending on your viewpoint, it is either a return to true Labour values of creating a fairer
Chancellor Alistair Darling, watched by Gordon Brown and Cabinet colleagues, delivers his Budget in the House of Commons society – or a reversion to nasty class war. It was also immediately clear that the battleground for the next election was being laid out as the Chancellor spoke, because this was a Budget more nakedly political than almost any before. Bringing forward the higher tax rate to next April, means it will take effect just weeks before
the General Election. The trap for the Tories is obvious. If they pledge to reverse it, they will be making the rich their priority at a time when the luckless majority are still suffering recession blues. If they accept it – as they surely must – then David Cameron will be hit by howls of protest from the Tory right and
accused of betraying the legacy of Margaret Thatcher. But will it make any difference to a government already apparently sailing towards an election shipwreck? Few Labour people will be optimistic. It screams volumes about Labour’s plight that they have judged “Darling Soaks The Rich” to be the only alternative
headline – and a preferable one – to “Darling Has Bankrupt Britain”. But it is unlikely to distract attention for long from the harsh reality of the deepest recession for 60 years, a £1trillion debt mountain and – buried in the red book – an admission that unemployment will soar way beyond 3m next year.
‘Carbon Budget’ to cut UK emissions
£750m package for scientific research
Package of measures to aid jobseekers
THE Chancellor has set the world’s first “carbon budgets” which will require the UK to cut its emissions by more than a third by 2020. £1bn has been identified to tackle climate change. Mr Darling also committed millions of pounds of extra funding and financial incentives for energy saving measures in homes and businesses, offshore wind and low carbon technology. And he announced £405m in new funding to encourage the development of low carbon energy and
BRITAIN’S position as a world leader in emerging technologies was bolstered by a £750m Budget package aimed at industry. It will help companies make the most of research and development in areas such as digital systems, biotech, advanced manufacturing and crucially “green” technology. The new money is intended to help businesses weather the economic downturn by transforming scientific ideas into useful products and services.
THE Chancellor announced plans to create or support 250,000 jobs as part of a package of measures to stem the rise in unemployment and help jobseekers, particularly the young, find jobs. Alistair Darling said the Government was determined not to return to the days when a whole generation of young people found themselves “abandoned to a future on the scrapheap”. The Jobcentre Plus network will receive an additional £1.7bn, on top of
“advanced green manufacturing” in the UK. With the credit crunch putting the squeeze on attempts to further develop the UK’s offshore wind capacity, the Chancellor said an extra £525m over the next two years would be raised. And in a bid to tackle emissions from coal and gas fired plants he said a new funding mechanism would finance between two and four projects which tested the use of technology which captures and stores carbon underground.
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In another move, Chancellor Alistair Darling announced a fresh look at the way the tax system affects innovative industries. The pharmaceutical industry, in particular, has repeatedly warned that, without better tax incentives, global companies will vote with their feet and move their research and development out of the UK. The £750m package includes £250m for low carbon business opportunities, such as low carbon vehicles.
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£1.3bn previously announced, so that “everyone” can receive highquality support. Most people, even now, continued to find work within a matter of weeks, said the Chancellor, unveiling additional support for people who have been out of work for 12 months. Mr Darling also said statutory redundancy pay will increase from £350 to £380 a week, but the move is unlikely to please trade unions, who had been pressing for a rise to £500.
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LDP Budget 2009
Paul Lea and fiancee Sandra
Mature couple – Paul Lee and long-term partner Sandra ESTATE agent Paul Lea, 47, is getting married to his longterm partner, Sandra, on May 1, so that expense has been dominating the horizon for some time. The couple have four boys under eight, two of whom are in private education. Home is in the Wirral and the pair have two cars, a Mercedes 4x4 and a 5-litre BMW, while holidays are taken in Gleneagles and abroad. Paul is chairman of the largest estate agency group on
Merseyside and the pair have a six-figure income. Tony Reddin, tax manager at Grant Thornton, Liverpool, said: “The changes to the tax rates will have little effect on Paul's take-home pay, with the changes being broadly neutral compared to last year. “However, the sting in the tail for Paul will come next year when the tax-free personal allowance that all taxpayers currently receive is removed for those earning £100,000 or more.
“Paul's forthcoming marriage will be an opportunity to organise his affairs in a taxefficient manner. There are a number of tax reliefs and benefits which are available to married couples and civil partners but which are not available to cohabiting couples. “At the very least, Paul should ensure that his property and any other investments are rationalised between himself and his wife in the near future.”
Young professional couple – Stephanie Ward and Sharif Hosny STEPHANIE WARD, 28, and Sharif Hosny, 30, are busy young professionals living in Hoylake. They have a mortgage on the house which they renovated themselves and are getting married in June. Stephanie works for Brava Design, a social enterprise specialising in web design. The couple have a joint income of £53,000 and own a Volkswagen Polo 1.4. They drink socially and holiday in Europe whenever they get the opportunity, putting some money into savings when circumstances allow. Grant Thornton expert Tony Reddin said the pair would be marginally better off following the Budget announcements from the Chancellor, and also urged more saving. He said: “Stephanie and Sharif will be about £15 per month better off in net pay terms following the changes to allowances and tax rates from April 6, 2009. “As savers, Stephanie and Sharif should consider whether a tax-free saving account such as an ISA should
How will the Budget affect you? Tony Reddin, of Grant Thornton, in Liverpool, helps us examine the Budget’s impact on some of our readers The single pensioner – Valerie Ireland VALERIE IRELAND, 61, receives the basic state pension and supplements her income with a part-time job. She doesn't smoke or drink or have any savings, but does own her own home, which is her main investment. Our expert, Tony Reddin, said: “Valerie will benefit from the increase in the basic state pension from £90.70 to £95.25 per week.
“She should ensure that her employer is not deducting National Insurance contributions from her parttime salary, now that she has reached 60. “In addition, Valerie can claim pension credit which may top up her state pension and part-time earnings to a maximum of £130 per week. “Working tax credits may also be available to supplement her income,
depending on her personal circumstance.” Ms Ireland said : “What I find really disappointing is once again the lack of concessions for pensioners. “We don’t get discounts on things like TV licences or council tax, or even dental treatment. “We are paying as much as someone earning £50,000, and I just don’t think that’s right.”
The singleton – James Burke
Sharif Hosny and Stephanie Ward – a little better off be opened for any savings that they can afford to put away. “They can currently each contribute up to £3,600 in cash per year to an account, with this limit increasing to £5,100 next year.
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“Motoring costs and socialising costs will increase by about £25 and £30 per year respectively, as a result of the changes announced, meaning that overall they should feel slightly better off.”
JAMES BURKE, 36, is a criminal lawyer with Brown Tuner Ross, and lives alone in Birkdale in his own home. His income is in the £30,000-£40,000 range, he drives a Volkswagen Bora 1.4 and enjoys a few pints at the weekend. He likes to holiday abroad, visiting the Mediterranean and Caribbean, also likes to play golf and is learning to sail.
He puts £150 per month into a stakeholder pension and feels he should double this but can't afford to. The Budget announcements mean he will pay a bit more for his socialising and to fill up the tank, but the general impact is minimal. Our expert, Tony Reddin, said: “The increase in the personal allowance will leave James slightly better off this
year, with around about £10 per month extra in his pay packet. “James should obtain tax relief for his pension contributions automatically, but, if he becomes a higher rate taxpayer, he will need to ensure that he obtains additional relief through an amendment to his tax code or by filling a selfassessment tax return after the end of the tax year.”
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DAILY POST Thursday, April 23, 2009
LDP Budget 2009
Young family – Katie McCowen and Andrew Bantock KATIE McCOWEN, 29, and partner Andrew Bantock, 44, both work for French fashion house Lollipops, and live in their own home in Mossley Hill. The couple have a baby, Amelia, who is 10 months old. The pair both drive Audis, enjoy holidays abroad and drink socially. They are both self-employed, so income can vary, but is generally up to £40,000 a year. Our expert, Tony Reddin, said: “Katie and her family will
Valerie Ireland
Lawyer James Burke
be about £20 better off a month in net pay terms, as a result of the changes to personal allowances and tax rates from April 6, 2009. “Katie is also entitled to Child Tax Credits which, if she isn't already claiming, could boost the family annual income by over £500 and so she should ensure a claim is made as soon as possible to have these credits paid straight into her account. “Being a parent to a young child, and the potential need to
Katie McCowen and daughter Amelia
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incur childcare costs, Katie should consider asking her employer to implement a childcare voucher arrangement. “There will be a modest increase in motoring tax costs of about £20 with a more stringent increase of £80 next year when road tax increases will apply. The increase to alcohol duties will cost about £30 extra per year.” Katie says regular travelling to their shop in Derby will push up transport costs.
ISA relief for hard-hit savers SAVERS were given a boost yesterday after the Chancellor announced an increase in the annual amount that can be invested in tax-free ISAs. The total annual allowance will rise from the current £7,200 limit to £10,200. Mr Darling said the cash limit within the overall allowance would rise from £3,600 to £5,100. The Chancellor said almost £290bn had been saved in tax-free ISAs since their launch 10 years ago, with 18m people having taken them out. At present, savers can put up to £7,200 in equities or a combination of equities and cash, with all money held in an ISA growing free of tax.
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Yesterday’s move marks the second ISA allowance increase since their introduction in the 1999 Budget to replace former tax-efficient savings vehicles PEPs and TESSAs. The total allowance was increased last year from £7,000 to £7,200. The new increase will offer welcome help to savers who have been hit by a series of hefty interest rate cuts by the Bank of England, which has left UK rates at an alltime historic low of 0.5%. Mr Darling also offered help to pensioners with “modest” savings who have been hit by the record low interest rates by changes to pension credit rules.
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DAILY POST Thursday, April 23, 2009
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Budget of hope fails to inspire Chancellor’s strategy falls short, as Neil Hodgson reports on the concerns of Merseyside businesses
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IVERPOOL accountant Stephen Hunter has cast doubt over Chancellor Alistair Darling’s sums. The head of tax for KPMG in Merseyside said: “The Budget projections look like a triumph of hope over experience. “Despite having to drastically downgrade his forecast for growth this year, the Chancellor still expects the economy to rebound over the next two years. “Even though Mr Darling insists the end of the recession is in sight, we are still looking at eye-watering budget deficits and a doubling of public debt.” Mr Hunter said that if the Chancellor’s forecasts prove over-optimistic, the public finances will turn out “even worse”. He said: “The plans for repairing the public finances are long on ambition but short on detail. If history is anything to go by, significant additional tax hikes will ultimately be necessary as well.
“In trying to combine support for the economy with reassurances public finances will be brought under control, the Chancellor risks falling between two stools. “If he hasn’t done enough to end the recession, the plans for improving the public finances will unravel as well.” Lobby group the Federation of Small Businesses (FSB) said the Budget ignored a sector which it says is at the heart of job creation and economic recovery. Norman Lay, FSB regional chairman, said: "We welcome moves to focus on jobs and job creation for young people, but we are very disappointed that this Budget will do nothing for those firms which are doing their best to hold on to their valued employees. A Government-funded wage subsidy for short-time working would have been a real help, but was totally ignored. "Small firms will also be disappointed not to have received the benefit of automatic rate relief. This will have
Frank McKenna – says the tax hike on the rich could stifle innovation boosted small businesses to the tune of £400m.” Liverpool Chamber of Commerce director Brian McCann expressed concern at worrying price increases for business. “We were very disappointed to see fuel duty will increase again in September by a further 2p,” he said. “The Chamber has campaigned to reverse the recent 1.8p rise, but he has gone the other way. That is fairly disappointing. “And there still appears an intention to increase the small business rate of tax,
which is a major disincentive to many small businesses.” While some may have applauded tax hikes for big earners, Downtown Liverpool in Business chairman Frank McKenna reckons the Chancellor has got it wrong: “I would criticise the 50% tax levy on people earning over £150,000 a year. “That potentially stifles innovation and goes against the promises New Labour made when it first came to power. Tony Blair said we will not become the party of envy again. The whole idea is putting a stop to entrepreneurialism.”
Chancellor did not go far enough to help property market, say agents and solicitors
Paul Sutton, of Sutton Kersh
Rathbones
PROPERTY experts yesterday questioned whether Alistair Darling’s Budget had done enough to help the housing market. Paul Sutton, managing director of Liverpool agents, Sutton Kersh, said: “There’s not a lot that’s going to make a huge difference to the property market, either commercial or residential.” Mr Sutton said the Budget contained some measures that “won’t do the market any
harm,” including the extension of the stamp duty holiday. “We would have been disappointed if they had brought it down to £125,000,” he said. But Mr Sutton said he would have liked to have seen stamp duty scrapped altogether. He said: “It’s an unfair tax – there’s no justification for it.” Mr Sutton, who has seen an increase in sales and enquiries at Sutton Kersh,
said what is really needed to kick-start the market is to get banks lending again at sensible rates. “What’s holding the market back is a lack of good, widereaching mortgage products,” he said. Janice Weatherly, real estate partner at Mace & Jones, said she cautiously welcomed the help made available to complete mothballed developments and the fund for new council
houses. But she said: “The devil is in the detail – what is the true scale of the investment? How many house building and construction projects will be kick-started? How many new council houses will be built? “Plans for mortgage-backed securities are vitally needed, but the stamp duty suspension is too insubstantial. What is needed is a raising of the threshold to at least £250,000.”
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DAILY POST Thursday, April 23, 2009
LDP Budget 2009 Haulage firm manager says ‘status quo Budget’ did little to help small companies THE managing director of a Liverpool haulage company said yesterday’s Budget had done nothing for small businesses. “As a businessman, they’ve done nothing at all for me,” said Tim Rhodes, managing director of Skypark Freight. “There was nothing helpful, nothing concrete. Just a lot of spin. “It was about Labour maintaining the status quo. “Why are they leaving the tax increase to 50% to next year? Why not do it with immediate effect? “With an election early next year, that’s never going to happen.”
The Speke businessman, who has recently reduced his staff from 12 to six, said the Government should be doing more to help small businesses, such as making money available to them at no cost. “Small businesses are the foundation of the country,” he added. Mr Rhodes said the Budget had given him little confidence with which to face the next 12 months. “We’re in for a much worse time than people think,” he said. “We need the Government to be totally honest, to sit down and work out where they’ve gone wrong and how to fix it.”
It’s time to scrap the old banger, Darling Tim Rhodes, MD of Skypark Freight
‘There’s nothing to help us as a retailer or a new business,’ says tea bar founder ALISTAIR DARLING did little to help retailers yesterday, said the manager of a city centre tea bar. Phil Kirby, of Brew, said: “From our point of view as a retailer, there’s nothing in there to help us in the next six to nine months. “It won’t do much for consumer confidence,” added Mr Kirby, who said he thought the Chancellor’s figures for projected growth were somewhat “deranged”. “I don’t see how the basis for his Budget will materialise when the IMF and others are forecasting 0% growth,” he said. Mr Kirby, who set up the tea
Phil Kirby, owner of Brew
bar last August, said the Chancellor had done nothing for Brew as a young, small business. “Businesses will be able to claim more on capital investments, but that won’t benefit us because we’re unlikely to make a significant profit on our investments,” he said. Despite starting a business at the worst possible time, said Mr Kirby, he said St Paul’s Square-based Brew had still seen steady growth. And he wanted to see the Chancellor doing more to help others – particularly those who’d lost their jobs – set up businesses.
Manufacturer Caldeira believes Chancellor’s measures will harm the region’s businesses MERSEYSIDE manufacturer and exporter Tony Caldeira delivered a scathing view of the Chancellor’s Budget. He said: “It will make the region’s businesses less competitive internationally because, in the long run, all this government’s borrowing will have to be repaid, leaving the region’s businesses vulnerable and uncompetitive in international markets.” The founder of Knowsleybased cushion maker Caldeira, which operates a Chinese factory and a US sales office, added: “The Chancellor had a fantastic opportunity to help businesses in the region, but he has left some difficult
decisions until after the next general election. “It was a bit of a nothing Budget. “What business needs now is accessible credit to help cash flow and lower corporation tax to stimulate investment. “But what we heard was a Budget that will leave the region’s companies paying their share of Gordon Brown’s debt for years to come. “The economic growth figures were particularly disappointing because the Chancellor admitted that the recession will be longer and deeper than he anticipated.”
Rathbones
Bill Gleeson
Self-made cushion king Tony Caldeira
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F ALISTAIR DARLING was a car, what would it be? A smoothrunning Jaguar serenely motoring through the countryside, or an old banger about to run out of fuel? I suspect he would be the latter. The Chancellor’s scrappage scheme, unveiled during yesterday’s Budget speech, is a symbol of this government’s impotence in the face of the global recession. The scrappage scheme will deliver little benefit to Europe’s car industry. The idea is that motorists who own a car that is at least 10 years old can trade it in for £2,000 against the cost of a brand new one. It’s a non-starter because drivers of old cars generally can’t afford new cars, which is why they are driving a 10-year-old car in the first place. Where, for example, is the rest of the purchase price coming from? The availability of car finance is pretty thin at the moment, so Britain’s car buyers won’t be getting the additional cash from that source. My guess is the UK has introduced the scheme under pressure from France and Germany, where they have recently implemented similar scrappage schemes. While the scheme has enjoyed a big uptake in Germany, it should not be forgotten that consumers there have traditionally preferred to save before splashing out on big ticket items. Germans are not dependent on credit being widely available. Some Ger-
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mans will have had the cash to take advantage of their scrappage scheme, but even there it will amount to a temporary fillip for sales. Labour’s current fiscal predicament arises in part from lavish public spending during the past decade. And then there is the new 50% income tax band on top earners. It speaks volumes about how business-friendly a country is. The decision to increase the top rate, albeit on those earning more than £150,000, will go a long way to reverse Britain’s hard won reputation for being a good place to do business. Mr Darling’s predictions for both economic growth and public sector borrowing are so optimistic they are comical. The surprise is that his advisors let him say so publicly. But perhaps his optimism shouldn’t be a surprise: after all, last year’s forecasts have since been seen to be hopelessly wrong. To get a true picture of what the future might hold, you should halve the good news and double the bad news. Yesterday’s Budget was a holding statement. No big decisions were taken. The public sector has survived unscathed, leaving the private sector to bear the brunt of the credit crunch. The Chancellor has ducked inflicting pain now, meaning somebody else is going to have to do it after the next election. What is clear is we are up to our necks in debt for years to come. Perhaps it’s time to scrap the old banger.
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DAILY POST Thursday, April 23, 2009
LDP Budget 2009
Where to turn for investment gains in these troubled times
Has Chancellor Alistair Darling seen the back of the economic good times?
BY ADRIAN MAXWELL
Investment Manager, Rathbones
Cash has been a good performer
SINCE the start of the reign of New Labour, back in 1997, the Government has strived towards the political “third way”; a traditional Labour party augmented by private sector promotion and involvement. For a decade, this appeared to be the recipe for success. As Chancellor, Gordon Brown presided over one of the most prosperous periods in recent history. As we are now aware, this boom period was fuelled by cheap and readily available credit. During this time of unidirectional market expectations, the forgotten danger of gearing's devastating downside effect is now very much at the
fore. This applies to businesses and governments alike. The cost of the current recession is unknown at this stage, but one thing is for sure – the state of the UK government finances look fragile. Government bail-outs of the banking system, as well as fiscal stimulus plans, have been expensive. When combining this with falling tax receipts, from both businesses and individuals, rising benefit payments and ambitious public spending plans, it is easy to be concerned about public finances. The Budget revealed the borrowing requirement to be £175bn for this year – a deficit of 12% of GDP. The
Government is going to have to borrow further to fund this gap in the coming years. On an individual level, the UK consumer has also over-extended through expensive house purchases and credit card largesse. A period of de-leveraging is now under way with consumption falling, as seen by retail sales figures, and debt servicing and repayment on the rise. For those who have savings, the fear of the safety of those deposits has now switched to disappointment over the return generated as cash rates with a base rate at 0.5% are meagre. Is now, therefore, the time to consider other asset classes such as
Does Budget mark end of the Third Way?
equities and bonds? The stock market has fallen heavily over the last two years, and so cash has been a relatively good performing asset. However, good value does seem to be emerging for bond and equity investments, as prices move towards historically low levels and yields are significantly higher than cash. At any critical point in an economy or market there are risks, but also opportunities, as volatility rises and rationality falls. Even the weak state of public sector finances can provide opportunity from efficiency initiatives in procurement, service outsourcing, as evidenced by the savings target of £9bn by 2014, and the beneficiaries of fiscal stimulus.
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welcomes
private investors
Our approach is designed to offer private investors a portfolio management service they can trust, delivered directly by one of our 150 experienced investment professionals. Our modern, transparent investment service seeks out the best investment options available to meet your needs over the long-term. London Birmingham Bristol Cambridge Chichester Edinburgh Exeter Kendal Liverpool Winchester Rathbone Investment Management Limited is authorised and regulated by the Financial Services Authority. Registered office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in England No. 1448919.
Please contact: Henry Robertson Head of Marketing Telephone 0151 236 6666 henry.robertson@rathbones.com www.rathbones.com