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Archive for the ‘Public finance’ Category
Wednesday, August 31st, 2011
Homelessness charity points to direct link between economic downturn and welfare cuts, and rising numbers living on streets
The economic downturn and the government’s deep cuts to welfare will drive up homelessness over the next few years, raising the spectre of middle class people living on the streets, a major study warns.
The report by the homelessness charity Crisis, seen by the Guardian, says there is a direct link between the downturn and rising homelessness as cuts to services and draconian changes to benefits shred the traditional welfare safety net.
In the 120-page study, co-authored by academics at the University of York and Heriot-Watt University, Crisis highlights figures released over the summer that show councils have reported 44,160 people accepted as homeless and placed in social housing, an increase of 10% on the previous year and the first increase in almost a decade.
Last year another 189,000 people were also placed in temporary accommodation – such as small hotels and B&Bs – to prevent them from becoming homeless, an increase of 14% on the previous year.
Crisis says that with no sign of economic recovery in sight, there are already signs that homelessness is returning to British streets. In London, rough sleeping, the most visible form of homelessness, rose by 8% last year. Strikingly, more than half of the capital’s 3,600 rough sleepers are now not British citizens: most are migrants from eastern Europe who cannot find work and, unable to get benefits or return home, are left to fend for themselves on the streets.
The charity says the evidence is that the current recession has seen the poor suffer the most, but other parts of society may be in jeopardy if the government’s radical welfare agenda is acted on as the economy stutters.
“Any significant reduction of the welfare safety net in the UK as a result of coalition reforms may, of course, bring the scenario of middle-class homelessness that much closer,” the report states.
The charity says that the government needs to reverse cuts to housing benefit and invest urgently in new housing. It also calls on ministers to withdraw the most radical provisions in the localism bill, which would make “temporary accommodation” for needy families just that. Under the new legislation, councils would be forced to remove parents and children who have been in a hotel for a year. At present the assistance is open-ended.
There is also an alarming trend in what the charity calls the “hidden homeless” – families forced to squeeze into one room rather than a flat. It says 630,000 households are now “overcrowded”, with London and the south-east the worst hit. This trend could worsen: this summer a survey by the National Landlords Association found more than half of private landlords were planning to reduce the number of properties they let to tenants on housing benefits. Crisis says more families will be forced to share an ever decreasing number of homes.
In a separate report, Channel 4 News will broadcast further evidence that official figures underestimate the true picture of homelessness. In Crawley, West Sussex, the Open House hostel said it turned away people needing a bed almost 2,000 times last year, although official figures estimate there are just seven homeless people in the town. Two-thirds of homelessness organisations nationwide told Channel 4 there had been a rise in rough sleeping in their area.
Leslie Morphy, Crisis’s chief executive, said: “We are extremely worried. Homelessness in both its visible and hidden forms is already rising and as the economic downturn causes further increases in unemployment and pressure on households’ finances, homelessness is likely to continue to rise. This research is clear that it is the welfare and housing systems in the UK that traditionally have broken the link between unemployment and poverty and homelessness, yet these are now being radically dismantled by the coalition government. The government must listen and change course before this flow of homeless people becomes a flood.”
Crisis argues that instead of doubling its efforts to end the “scandal” of homelessness, the government is in effect making it impossible for those on low incomes to pay their rent. It says in the past British welfare policy, unlike that in the US, has linked housing benefit to actual rents. But the government’s changes break this link and mean that claimants will be priced out of swaths of the country – or end up on the streets in wealthy regions.
The report also says the government’s “affordable” house-building regime is likely to generate fewer than 50,000 homes by 2015, “well short of the 80,000 required to meet ministers’ targets”. Gone will be the lifetime tenancies offered by councils which had to give priority to those in need. Instead, under new powers, local authorities will be able to choose families with “local connections”.
With the coalition’s welfare reform bill heading to the Lords and MPs voting on the localism bill next week, Labour said Crisis’s warnings were a “timely reminder of a looming homeless catastrophe”. Karen Buck, Labour’s welfare spokesperson, said the government had played down the rising number of people who thanks to the economic downturn were forced to rely on housing benefit.
She said that since the government took power another 150,000 families had been forced on to housing benefit. “The numbers relying on housing benefit to help with housing costs have been soaring. These figures include not just the unemployed but hundreds of thousands of working families. Rising rents, benefit cuts and housing shortages risk a homeless catastrophe will with all the associated human and financial costs.”
The Department for Communities and Local Government said: “Ministers have always made clear their commitment to ensure the most vulnerable in society are protected, which is why the government is investing £400m in preventing homelessness, and has announced plans to extend the London project, No Second Night Out, across the country so no one spends more than one night sleeping rough.
“But the most important thing the government can do to help struggling households to stay in their homes is to keep interest rates low, and to do that we must cut the deficit. That is why we are introducing reforms that will cut the housing benefit bill. But to ensure a smooth transition to this new system, the government is giving councils a £190m fund to help those families most in need.
“Far from the claims made by Crisis, the government’s £4.5bn affordable homes programme is set to exceed expectations and deliver up to 170,000 affordable homes by 2015.”
Posted in Charities, Communities, Family finances, Homelessness, House News, Housing, News, Politics, Property, Public finance, Public sector cuts, Public services policy, Society, State benefits, The Guardian, UK news, Voluntary sector, Welfare | Comments Closed
Wednesday, May 25th, 2011
National Audit Office has criticised the government programme for helping half the number of households it promised to rescue
A government scheme to help struggling mortgage borrowers stay in their homes has been criticised by the National Audit Office for helping less than half the expected households at a cost of nearly £100,000 each.
The mortgage rescue scheme, introduced in January 2009 by the Department for Communities and Local Government (DCLG), helped 2,600 households in two years, less than half the 6,000 expected. It also exceeded the budget of £205m by £35m, meaning the average cost of each rescue was £93,000 compared to an expected cost of £34,000.
The scheme offered homeowners who were in imminent danger of repossession the choice of an equity loan to help reduce their monthly mortgage costs, or to have their home bought by a housing association and stay on as the tenant.
The NAO said the DCLG misjudged the levels of demand for the two choices, believing most households would choose an equity loan – the cheaper option for the taxpayer. In reality, nearly all households chose the more expensive route of selling their house to a housing association. This was possibly because they had no equity left in their homes to borrow against.
Amyas Morse, head of the NAO, said: “The department made assumptions about the level of demand for the mortgage rescue scheme and made the wrong call. Spending more than expected and delivering less means the department has not provided value for money.”
Housing minister Grant Shapps said: “One of my first decisions in government was to insist on better value for money from this £240m scheme. In the last government, ministers believed that all you needed to do was throw money at a problem. The great sadness is that more people could have been helped to stay in their homes had they spent the money more wisely.”
But a recent Council of Mortgage Lenders report said that while house repossessions were up by 15% in the first quarter of 2011, the mortgage rescue scheme helped 5,039 households receive help and advice from their local authority in the first three months of 2011.
Campbell Robb, chief executive of Shelter said: “When judging the success of this scheme it’s important to remember it encouraged almost 40,000 struggling homeowners to seek help and as a result many kept their home. Many of these people got advice from organisations like Shelter, and our research shows that over half of those who came to us via this scheme managed to keep their home as a result.”
Peter Tutton, social policy officer for Citizens Advice agreed: “The scheme was always going to be low volume and expensive, because it was designed for some of the most vulnerable people in the UK – those with children and disabilities – becoming homeless. It’s hard to criticise DCLG staff for what they did: they really pitched in to get solutions, and the very fact that the scheme existed meant lenders and courts showed more forbearance.”
Posted in Borrowing & debt, Communities, House News, Housing, Housing market, Money, Mortgage arrears, Mortgages, News, Property, Public finance, Repossessions, Society, The Guardian | Comments Closed
Sunday, May 1st, 2011
Levies on land values do not depress or distort wealth creation and are easy to assess, cheap to collect and hard to avoid
Amid all the talk of rebalancing the economy, there is little mention of the most powerful lever the government could pull to generate growth, which involves a switch from taxing income to taxing wealth.
It is a subject that tends to get little coverage, mainly because its supporters are considered on the fringes of the political spectrum. Ultra-lefties support wealth taxes for obvious reasons. Ultra-capitalists support them because they understand that allowing the rich to ring-fence much of the nation’s assets and protect the mechanisms that allow values to increase without any serious government interference robs their children, and everyone else’s, of any incentive to work harder.
And now it is not just the aristocrats who accumulate serious wealth but also increasing numbers of middle income babyboomers – senior teachers, BT engineers, BA airline pilots and local council middle managers. With their million pound homes and million pound pensions, the problem is even bigger.
For an ultra-capitalist, the rapid accumulation of wealth over the last 15 years, which in property terms amounts to about £2.5 trillion, is making us fat and lazy. Only a wealth tax can sort it out.
Yet the debate has broadened in recent years with more mainstream groups taking up the cudgels. The OECD, the rich nation’s thinktank, has joined the ranks of supporters. Liberal Democrats Chris Huhne and Vince Cable, in their pre-coalition careers, also voiced some sympathy. Andy Burnham adopted the scheme in his pitch for the Labour leadership. Many mainstream economists have also argued the case.
Social unrest
The OECD and the orange book Lib Dems, though mostly concerned with making capitalism work better, are also concerned about the potential for social unrest. As the full impact of the financial crisis hits, they can see radical solutions are necessary. They argue for a fairer society because they understand that mature capitalism is becoming sclerotic. Without some fundamental changes those groups with little to lose will turn to protest and violence.
Burnham, who has evidently been doing more thinking than most in the Labour party, can see the potential for an alliance across the political divide that allows him to give the keys of wealth creation and accumulation back to a younger generation too poor to save and with no option but to rent.
What they are all talking about is the adoption of a land value tax. Purists would abolish all current taxes and replace them with an LVT that asked for a payment in line with the value of land under ownership.
Someone earning £40,000 a year would stop paying around £7,000 in income tax, £1,000 to £2,000 in VAT, £1,600 council tax and any of the transaction charges that fill the exchequer’s coffers. No more capital gains tax or stamp duty on property sales or the sale of shares. Instead they would pay a fixed annual sum, to be paid monthly, on the value of their land, which could have a wide range, depending on how much the land is worth.
Move out of town and work locally, and your overall tax bill could be a fraction of its current total. Buy an expensive piece of real estate in the city centre and you would probably pay more.
There are many consequences of following this path that are positive for wealth creation. The worker keeps all his income and there is a 100% gain for every extra hour worked. If you develop your property, it has only limited effect on the value of the land, giving you every incentive to modernise and improve the property.
Under the proper working of the council tax, increases in property values, as opposed to land values, lead to higher taxes, which is a disincentive to carry out those improvements in the first place.
Mark Wadsworth is an economist, blogger, sometime Tory Bow Group adviser and campaigner for land value taxes. He recently told Economic Voice website: “I’m an economist not a politician, and I can only repeat what all the great economists have said down the centuries: taxes on land values are the least bad taxes because they do not depress or distort economic activity, ie wealth creation. Land value tax is easy to assess, cheap to collect and impossible to evade.
“Not only that, LVT is an entirely voluntary tax: you decide how much you are willing to pay and you choose a house or a flat within that price range. Only, instead of handing over all the rent or purchase price to the current owner, the location value would go to the government.”
What he means by this last sentence is that property prices would necessarily settle at a lower level because a buyer will deduct the location value, knowing they must send it to the exchequer in the form of a tax.
Fred Harrison, the doyen of LVT proponents, adds that the effects are broader and longer term. In his 2005 book Boom and Bust, he points out that landowners who aggressively accumulate land for property speculation in prime parts of the country would face a huge tax bill. Idle land would be brought into use, subject to planning permission.
Property wealth
So not only do we get a tax that is easy and cheap to collect, it would be difficult for the super rich to avoid with their offshore trusts and company ownership structures, and it would also lower the value of the asset that is stifling social mobility – property.
As the economist Martin Weale has argued, the accumulation of property wealth is in effect an act of theft perpetrated on the younger generation who must pay the exhorbitant prices demanded by baby boomers or rent.
The OECD argues against taking a purist line. It fully supports tackling taxes on the gains people have made through their businesses activities. These are taxes on entrepreneurialism or plain hard work. (Don’t think of the City fat cat, but the Labour-voting JCB driver who works 20 hours overtime only to find he has crossed into the 40% higher tax bracket. The party of higher income taxes is not helping him.)
However, abolition is a step too far. In a series of documents over the last couple of years the OECD has argued for a shift away from income taxes on individuals and businesses to a land value tax and VAT.
It wants to retain VAT for several reasons. There is the simple advice never to put all your eggs in a single basket. But more importantly, in an age of consumerism and potential environmental degradation, government’s need to influence consumer behaviour and sales taxes are another tool. VAT is embedded in European tax raising and, like LVT, is hard to avoid.
Despite all these advantages, there are many powerful forces ready to dismiss LVT as fanciful, not least the property-owning classes who have an entrenched view that their house price is a just reward for their labour.
But what LVT campaigners have shown is that the average taxpayer will be no worse off – they will simply pay less income tax and a higher wealth tax.
Posted in Business, Chris Huhne, Comment, Economics, House News, House prices, Money, Politics, Property, Public finance, Society, Tax, Tax avoidance, The Guardian, Vince Cable | Comments Closed
Thursday, March 24th, 2011
Who has gained – and who has been hit hard – after George Osborne’s budget
Winners
• People with jobs – an allowance increase means everyone who pays income tax will be up, albeit only to the tune of about 90p a week, so few will be popping open the champagne.
• Drivers, and drivers of gas-guzzlers in particular. George Osborne did not merely cancel the planned rise in fuel duty, but actually cut the rate by a penny. Fuel prices remain high, but motorists filling up cars with big tanks will be walking away with a whole handful of change that would otherwise have been snatched.
• The right sort of fat cats. Shareholders and managers will welcome an unexpectedly large cut in the corporate tax rate, and entrepreneurs will be positively thrilled at being able to claim lifetime relief on capital gains of up to £10m.
• The right sort of smokers. Under the fug of a promise of “restructuring cigarette duty”, consumers of costlier brands could escape the budget increase that long seemed inevitable, as the ad valorem (price related) part of the duty looks set to be cut in relation to the flat-rate component.
• Cash-strapped town-halls – they didn’t get any immediate bail-out, but the promise of “auctions on planning permission” could provide them with a valuable new source of revenue, and might just have the effect of kickstarting the building trade.
• Higher rate taxpayers. They will mostly share in this year’s allowance increase, which was restricted to basic rate payers last year. Much more important for the richest among them was Osborne’s commissioning of a study on the 50p super-tax rate, which could eventually presage the way for its abolition.
Losers
• People without jobs, who remain in line to bear the brunt of the £18bn raid on the annual benefit bill that remains in the pipeline. Disabled people and renters of costly housing will be among the biggest losers, with some claimants in line for losses of £80 a week or more.
• Treasury civil servants who, thanks to the creation of a fair fuel stabiliser, are landed with the virtually impossible task of figuring out when a rise in the oil price is merely a blip that invites a cut in duty as opposed to a permanent sign that the black stuff is running out.
• The wrong sort of fat cats. The banks face a levy of an extra £630m this year, and unpopular non-doms will have to stump up an extra £20,000 a year in order to avoid being taxed like the rest of us.
• The wrong sort of smokers, most particularly those who roll their own. Fears of smuggling saw the Treasury go easy on rolling tobacco for well over a decade, and rollies – which were once the preserve of long-hairs and students – made their way into the cash-strapped mainstream. Now prices will rise, as will those of cut-price cigarette brands.
• Shire Tories who, together with conservationists and other Nimbys, could find it increasingly hard to see off building developments if councils are allowed to raise serious money by selling the right to build.
• Liberal Democrats – the boost to allowances loomed large in their manifesto, but the party failed to spot how the Treasury will soon claw back the gains by restricting the way adjustments are made for inflation. By the end of this parliament, this wheeze will claw back the great bulk of the “giveaway” announced and, looking further ahead, it will start to push extra low-earners back into tax.
• North Sea oil companies. While their customers laugh all the way to the pump, those parts of UK Plc whose business it is to extract the black stuff will see the taxman snatch quite a chunk of the extraordinary revenue oil is bringing in at the moment.
Posted in Budget, Budget 2011, Business, Economic policy, Economics, George Osborne, guardian.co.uk, House News, Money, Motoring, News, Oil, Petrol prices, Politics, Property, Public finance, Society, Tax, Tax and spending, UK news | Comments Closed
Wednesday, March 23rd, 2011
• Fuel duty cut by 1p and fuel duty escalator scrapped
• Corporation tax cut by 2p – not 1p as expected
• Annual growth forecast revised down from 2.1% to 1.7%
• National insurance and income tax may be merged
George Osborne has levied a £2bn windfall tax on Britain’s North Sea oil companies to pay for a cut in petrol duties for motorists struggling because of the soaring price of crude oil on global markets.
The chancellor said he wanted his budget to “put fuel into the tank of the British economy”.
He told the Commons he was scrapping the previous Labour government’s plans for automatic above-inflation increases in fuel duties and would instead be cutting 1p a litre from forecourt prices from tonight.
In the sort of flourish that was Gordon Brown’s trademark at the end of his budgets, Osborne announced the fuel duty cut at the climax of a 56-minute speech built around the theme of boosting growth and rebalancing the economy. The cost of “filling up a family car such as a Ford Focus has increased by £10″, he said, and he wanted to do something to help.
He said he was cutting corporation tax by 2p in the pound this year rather than the 1p reduction previously planned, and announced a shake-up of planning laws and a bonfire of regulations in an attempt to stimulate enterprise.
However, the Labour leader, Ed Miliband, said Osborne’s claim to have delivered a budget for growth was undermined by a cut in the growth forecast for 2011 from 2.1% to 1.7%.
Osborne cast his second budget since becoming the chancellor in May as an “urgent call to action” in which the government would move from “rescue to reform and from reform to recovery”, building on the deficit reduction measures of 2010.
He said it was a fiscal plan designed to create an economy built on private sector growth and the “march of the makers” rather than using government spending and debt to encourage a recovery.
He added that his budget measures would be “fiscally neutral across the period, neither raising tax nor offering giveaways”.
The chancellor presented a package of measures to boost business and make Britain more competitive, help consumer confidence and claw revenue back elsewhere.
Osborne said Britain had “lost ground” in the world’s economy and needed to catch up. His budget set “four economic ambitions” for Britain: being the most competitive tax system in the G20; being the best place to “start, finance and grow a business”, with a more balanced economy and a more educated and “flexible” workforce.
Measures included a further 1% cut in corporation tax to make clear that “Britain is open for business” and an annual £1bn clampdown on tax avoidance.
“Today’s budget is about reforming the nation’s economy so that we can have enduring jobs and growth in the future, doing what we can to protect families from the high cost of living,” he said.
Presented against a deteriorating economic backdrop of rising oil prices, public sector austerity and low consumer confidence, the budget sought to appeal to Britain’s “squeezed middle” by announcing help for first-time home-buyers, and a boost for 25 million income taxpayers by raising the threshold on the personal tax allowance to £8,075 by April 2012.
With household bills and retail prices rising, the chancellor concentrated much of the money he has to play with on cutting fuel prices as the cost of petrol and diesel reached all-time national average highs (£1.33 and £1.40 respectively) to increase consumers’ spending power and help business.
The rise in fuel duty planned for next week will be delayed until 2012, and the fuel duty escalator that adds 1p to fuel duty on top of inflation each year to be cancelled for the rest of this parliament.
A fair fuel stabiliser to help keep costs down in future is to be funded by an increased levy on oil and gas production.
Osborne told MPs that helping families with the cost of living and backing enterprise and introducing “far-reaching reforms” to help the economy grow were “one and the same thing”.
He said: “It is the central understanding of this government – and core to our strategy – that these are not two separate tasks. They are one and the same thing.
“We are only going to raise the living standards of families if we have an economy that can compete in the modern age.
“So this is our plan for growth. We want the words ‘made in Britain’, ‘created in Britain’, ‘designed in Britain’, invented in Britain’ to drive our nation forward.
“A Britain carried aloft by the march of the makers. That is how we will create jobs and support families. We have put fuel into the tank of the British economy.”
But his package received short shrift from Miliband, who told him his economic strategy for Britain was “hurting, not working”.
Miliband challenged Osborne’s claim to have delivered a budget for growth, saying the government’s cuts were damaging the economic recovery.
“Every time he comes to this house, growth is downgraded,” he said. “One fact says it all, and he couldn’t bring himself to say it: growth down last year, this year and next year. It’s the same old Tories – it’s hurting, but it isn’t working.”
Other measures to protect the money in people’s pockets in Osborne’s budget include:
• Raising the income tax personal allowance by £630 next year, which comes on top of the £1,000 rise next month and lifting the threshold at which income tax is payable to just over £8,105 from April next year, a real terms increase of £48 a year (or £126 in cash terms) for those earning up to £115,000 a year.
The 550,000 taxpayers who earn more than £115,000 will lose £45 a year because they no longer have a personal allowance.
The latter measure will see a further 250,000 people taken out of income tax altogether, in a move that brings the coalition a step closer to its promise of delivering a £10,000 tax threshold by the 2015 general election.
• A £250m shared equity scheme for new homes, funded from the bank levy, to help 10,000 families. Those with a household income of less than £60,000 a year who can put down a 5% deposit on a new home will be eligible for an equity loan worth up to 20% of the value of the property jointly funded by the government and housebuilders.
The loan will be interest-free for five years and only be repayable when the house is sold.
In a budget designed to shift away from spending cuts to reduce the national debt to growth-enhancing measures, Osborne also published his growth strategy for business.
His bid to boost the private sector includes:
• The removal of £350m worth of regulation on businesses.
• A three-year moratorium on new domestic regulation for all businesses employing fewer than 10 people.
• New planning rules to require planners to prioritise growth and jobs with a new presumption in favour of sustainable development, while retaining existing controls on green belt land.
• Small business relief extended to October 2012, at a cost of £370m.
• Funding for 21 new enterprise zones.
• Funding for 40,000 new apprenticeships for unemployed young people.
The chancellor presented gloomy figures based on data from the Office for Budget Responsibility (OBR) which confirmed that the recovery would move at a slower pace than previously forecast.
He said GDP growth estimates for 2011 had been cut from 2.1% to 1.7%, while 2012 was revised down to 2.5% from 2.6%.
He stressed that the long-term outlook was more upbeat as estimates for 2013 were held and forecasts for 2014 and 2015 were revised upwards to 2.9% from 2.8% and 2.8% from 2.7% respectively.
Osborne also revealed that the rate of inflation, currently at 4.4%, is not expected to drop back to the government’s 2% target until 2013, contrary to the Bank of England’s belief it will fall back by 2012.
But the chancellor said the government was on track to deliver a balanced structural budget and falling national debt by the end of parliament.
“Our fiscal mandate is to achieve a cyclically-adjusted current balance by the end of the rolling five-year forecast period – which is currently 2015-16,” he said.
“We have supplemented that with a fixed target for debt: so that debt should be falling as a proportion of GDP by the year 2015-16 as well.
“I can report to the house that the OBR confirm that on their central forecast we will meet both these objectives – a balanced structural current budget and falling national debt by the end of the parliament. Indeed, the forecast remains that we will meet both these objectives one year earlier.”
On tax, Osborne announced plans to make Britain’s tax system more competitive and simpler:
• Corporation tax will be reduced by 2% from April 2011 – rather than 1% as previously announced – and to fall by 1% in each of the next three years to reach 23%. In a bid to offset the effect of the reduction on banks, the bank levy rate will adjusted next year.
• “No less than 43 complex tax reliefs” would be abolished as part of a simplification of the tax system, Osborne said.
As part of the move, he confirmed widely trailed speculation that he would consult on scrapping the divide between income tax and national insurance as part of a drive to simplify taxation for business.
He said this would be a way for people to see more clearly how much they are being taxed, rather than to raise them, and make the system “fit for the modern age”.
Osborne balanced giveaways with fresh tax-raising measures, which included:
• The charge on non-domiciled taxpayers to increase from £30,000 for those here for seven years to £50,000 for those in the country for 12 years, raising more than £200m.
• A clampdown on the “injustice” of tax avoidance. Osborne said three forms of stamp duty land tax avoidance would be closed, capital gains rules for companies would be tightened and the practice of disguised remuneration, which sees highly paid employees offered tax-free, lifetime loans that are never repaid, would come to an end.
“In total, on the numbers audited by the independent OBR, the tax avoidance measures in this budget raise around £1bn a year – that’s £4bn over the parliament,” he added.
“We are doing more today to clamp down on tax avoidance than in any budget in recent years. And that gives us more resources, in a fiscally neutral budget, to help those families who do pay their taxes, but who are struggling with the daily cost of living.”
Posted in Budget, Budget 2011, Business, Economic growth (GDP), Economic policy, Economics, George Osborne, Green shoots, guardian.co.uk, House News, Money, Motoring, News, Petrol prices, Politics, Property, Public finance, Tax and spending, UK news | Comments Closed
Wednesday, March 23rd, 2011
Despite rise in inflation and borrowing, chancellor to court medium earners in ‘steady-as-she-goes’ financial package
George Osborne will seek to appeal to Britain’s “squeezed middle” when he announces help for first-time buyers, motorists and 25 million income tax payers in a budget designed to tighten the Treasury’s grip over public spending.
Despite disappointing news for the public finances, the chancellor is expected to say that he has scope to raise the income tax personal allowance by £600 next year, fund a £250m shared equity scheme for new homes and defer the above-inflation increase in petrol duty due next month.
But Osborne will balance tax giveaways with fresh tax-raising measures, a crackdown on tax avoidance and “special measures” for overspending Whitehall departments in what sources insisted would be a “steady-as-she-goes” package.
The chancellor will outline a range of measures – including a shake-up of planning laws, deregulation of employment laws affecting small businesses, and the long-awaited plans for a green investment bank as the coalition government seeks to shift the focus of the economy from deficit reduction to boosting growth.
Osborne will admit that the UK’s growth prospects for 2011 have worsened since last autumn, with the independent Office for Budget Responsibility likely to pencil in an increase of around 1.8% in gross domestic product this year against the 2.1% it forecast last November.
But the chancellor will signal his determination not to let the government’s deficit reduction plans slip, with fresh controls designed to intensify pressure on ministers to rein in spending.
Departments that fail to manage their budgets properly will be placed in special measures – akin to the Ofsted rating given to a failing school – with tough penalties. These could include fines for overspending or being forced to seek Treasury authorisation for larger spending decisions.
City hopes that public borrowing for 2010-11 would come in £10bn below the £148bn forecast received a dent with news that the deficit in February topped £10bn – the highest for the month since modern records began in 1993. Meanwhile, inflation according to the consumer price index rose from 4% to a 28-month high of 4.4% last month, pushing up government spending on state benefits.
Dearer food, fuel and clothing were the main factors behind last month’s jump in inflation, which is now more than double the government’s 2% target. The increase in the CPI measure of inflation was matched by a rise in the alternative yardstick of the cost of living, the retail prices index, which rose from 5.1% to 5.5% last month, its highest for 20 years.
In a move that will please the Liberal Democrat wing of the coalition, Osborne will say that the income tax personal allowance, due to go up to £7,475 next month, will be raised by more than inflation from next year.
The increase of around £600 – which comes on top of the £1,000 rise next month – will be worth an average of £45 a year for taxpayers earning up to £115,000 a year. The 550,000 taxpayers who earn more than £115,000 will lose £45 a year because they no longer have a personal allowance.
Osborne will announce a joint scheme with the construction industry to help some of the potential first-time buyers currently frozen out of the housing market. First-time buyers with a household income of less than £60,000 a year who can put down a 5% deposit on a new home will be eligible for an equity loan worth up to 20% of the value of the property jointly funded by the government and housebuilders. The loan will be interest-free for five years and only be repayable when the house is sold.
With most first-time buyers only able to secure mortgages worth 75% of a property’s value, Osborne is expected to say his scheme will give some young people the chance to meet the exacting loan standards demanded by lenders in the wake of the financial crisis, lead to the building of 10,000 new homes and protect 40,000 jobs in the construction industry.
The year long cabinet battle over Britain’s ability to invest in the next generation of green infrastructure will be resolved when a green investment bank is established with access to up to £3bn of funds, and an ability to borrow from April 2015. Green groups will be disappointed about the deferral of borrowing powers, but pleased at the higher than expected interim funding.
The battle over the bank was resolved on Sunday and the outcome reflects a wider political struggle to ensure plans in the budget to ease pressure on the squeezed middle, including freezing planned fuel duty rises, does not strip the coalition of its green credentials.
Ministers admit the deferral of the bank’s borrowing powers to 2015-16 reflects Treasury determination to ensure net debt as a percentage of GDP is falling by 2015-16. But they also argue that decisions on the next big wave of green investment projects, including offshore wind farms, do not need to be made until after 2015.
In a negotiating success for Chris Huhne, the energy secretary, the bank will be given access to £1bn of funds from 2012-13, as opposed to the earlier plan to wait until 2013-4.
The bank will also be given access from 2012-13 to £775m from the asset sales from HS1, the superfast rail track between London and the Channel tunnel. In addition the bank will have access to £1bn from the sales from 2013-14 from Urenco, the company that makes enriched uranium from nuclear power. The government owns a third of Urenco jointly with the Dutch government and German energy companies RWE and E.On.
The Treasury has given a guarantee that if the income from the sale of Urenco is not forthcoming, the green bank will have access to other funds.
Posted in Borrowing & debt, Budget, Budget 2011, Business, Conservatives, Editorial, Family finances, George Osborne, House News, Inflation, Money, Motoring, Politics, Property, Public finance, Public services policy, Society, Tax and spending, The Guardian, UK news | Comments Closed
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Tax property, not people, for a fairer society
Sunday, May 1st, 2011Levies on land values do not depress or distort wealth creation and are easy to assess, cheap to collect and hard to avoid
Amid all the talk of rebalancing the economy, there is little mention of the most powerful lever the government could pull to generate growth, which involves a switch from taxing income to taxing wealth.
It is a subject that tends to get little coverage, mainly because its supporters are considered on the fringes of the political spectrum. Ultra-lefties support wealth taxes for obvious reasons. Ultra-capitalists support them because they understand that allowing the rich to ring-fence much of the nation’s assets and protect the mechanisms that allow values to increase without any serious government interference robs their children, and everyone else’s, of any incentive to work harder.
And now it is not just the aristocrats who accumulate serious wealth but also increasing numbers of middle income babyboomers – senior teachers, BT engineers, BA airline pilots and local council middle managers. With their million pound homes and million pound pensions, the problem is even bigger.
For an ultra-capitalist, the rapid accumulation of wealth over the last 15 years, which in property terms amounts to about £2.5 trillion, is making us fat and lazy. Only a wealth tax can sort it out.
Yet the debate has broadened in recent years with more mainstream groups taking up the cudgels. The OECD, the rich nation’s thinktank, has joined the ranks of supporters. Liberal Democrats Chris Huhne and Vince Cable, in their pre-coalition careers, also voiced some sympathy. Andy Burnham adopted the scheme in his pitch for the Labour leadership. Many mainstream economists have also argued the case.
Social unrest
The OECD and the orange book Lib Dems, though mostly concerned with making capitalism work better, are also concerned about the potential for social unrest. As the full impact of the financial crisis hits, they can see radical solutions are necessary. They argue for a fairer society because they understand that mature capitalism is becoming sclerotic. Without some fundamental changes those groups with little to lose will turn to protest and violence.
Burnham, who has evidently been doing more thinking than most in the Labour party, can see the potential for an alliance across the political divide that allows him to give the keys of wealth creation and accumulation back to a younger generation too poor to save and with no option but to rent.
What they are all talking about is the adoption of a land value tax. Purists would abolish all current taxes and replace them with an LVT that asked for a payment in line with the value of land under ownership.
Someone earning £40,000 a year would stop paying around £7,000 in income tax, £1,000 to £2,000 in VAT, £1,600 council tax and any of the transaction charges that fill the exchequer’s coffers. No more capital gains tax or stamp duty on property sales or the sale of shares. Instead they would pay a fixed annual sum, to be paid monthly, on the value of their land, which could have a wide range, depending on how much the land is worth.
Move out of town and work locally, and your overall tax bill could be a fraction of its current total. Buy an expensive piece of real estate in the city centre and you would probably pay more.
There are many consequences of following this path that are positive for wealth creation. The worker keeps all his income and there is a 100% gain for every extra hour worked. If you develop your property, it has only limited effect on the value of the land, giving you every incentive to modernise and improve the property.
Under the proper working of the council tax, increases in property values, as opposed to land values, lead to higher taxes, which is a disincentive to carry out those improvements in the first place.
Mark Wadsworth is an economist, blogger, sometime Tory Bow Group adviser and campaigner for land value taxes. He recently told Economic Voice website: “I’m an economist not a politician, and I can only repeat what all the great economists have said down the centuries: taxes on land values are the least bad taxes because they do not depress or distort economic activity, ie wealth creation. Land value tax is easy to assess, cheap to collect and impossible to evade.
“Not only that, LVT is an entirely voluntary tax: you decide how much you are willing to pay and you choose a house or a flat within that price range. Only, instead of handing over all the rent or purchase price to the current owner, the location value would go to the government.”
What he means by this last sentence is that property prices would necessarily settle at a lower level because a buyer will deduct the location value, knowing they must send it to the exchequer in the form of a tax.
Fred Harrison, the doyen of LVT proponents, adds that the effects are broader and longer term. In his 2005 book Boom and Bust, he points out that landowners who aggressively accumulate land for property speculation in prime parts of the country would face a huge tax bill. Idle land would be brought into use, subject to planning permission.
Property wealth
So not only do we get a tax that is easy and cheap to collect, it would be difficult for the super rich to avoid with their offshore trusts and company ownership structures, and it would also lower the value of the asset that is stifling social mobility – property.
As the economist Martin Weale has argued, the accumulation of property wealth is in effect an act of theft perpetrated on the younger generation who must pay the exhorbitant prices demanded by baby boomers or rent.
The OECD argues against taking a purist line. It fully supports tackling taxes on the gains people have made through their businesses activities. These are taxes on entrepreneurialism or plain hard work. (Don’t think of the City fat cat, but the Labour-voting JCB driver who works 20 hours overtime only to find he has crossed into the 40% higher tax bracket. The party of higher income taxes is not helping him.)
However, abolition is a step too far. In a series of documents over the last couple of years the OECD has argued for a shift away from income taxes on individuals and businesses to a land value tax and VAT.
It wants to retain VAT for several reasons. There is the simple advice never to put all your eggs in a single basket. But more importantly, in an age of consumerism and potential environmental degradation, government’s need to influence consumer behaviour and sales taxes are another tool. VAT is embedded in European tax raising and, like LVT, is hard to avoid.
Despite all these advantages, there are many powerful forces ready to dismiss LVT as fanciful, not least the property-owning classes who have an entrenched view that their house price is a just reward for their labour.
But what LVT campaigners have shown is that the average taxpayer will be no worse off – they will simply pay less income tax and a higher wealth tax.
Posted in Business, Chris Huhne, Comment, Economics, House News, House prices, Money, Politics, Property, Public finance, Society, Tax, Tax avoidance, The Guardian, Vince Cable | Comments Closed