MARKETS
The price of British Government bonds plunged within minutes of the Chancellor
sitting down as the Debt Management Office (DMO) revealed that it would be
tapping investors for a much bigger than expected £240 billion this year.
The need for immediate extra government borrowing was far more urgent than
most analysts had predicted.
"It's massively worse than expected," said Shahid Ikram, head of
sovereign products for Aviva Investors.
The median forecast among City experts was for the Government to issue £180
billion of gilts this year. But the DMO, which raises money for the Treasury
by issuing bonds, said that it would issue £220 billion of bonds this year
plus £20 billion of shorter-dated Treasury bills.
The June gilt
future — a widely used measure of government bond prices — slid by 0.84
points to 121.67.
Yields on medium maturity gilts rose by 0.15 per cent, a substantial intraday
move.
In choppy trade, sterling fell more than a cent to below $1.4486.
FTSE 100 shares lost early gains during Alistair Darling's Budget speech, and
a 28-point rally was reversed into a 23-point fall which was later lifted by
a stronger Wall Street. The FTSE 100 closed the day up 43.2 at 4,030.66.
Richard Lambert, director-general of the CBI, told The Times: “What we
were looking for from this Budget was that it set out a credible path for
restoring the public finances to health. Our view is that it does not.
Everything has to go very well for a decade for the budget to balance,”
(writes Ian King).
Mr Lambert said he would give the Budget “the thumbs down, rather than the
thumbs-up” as the employers organisation was concerned that the Chancellor’s
growth forecasts for 2010 appeared to be “a lot more optimistic” than those
of other forecasters.
He pointed out that Mr Darling had also “stretched out” the date by which the
public finances would come back into balance out to 2018 — a further two
years from his projects in November’s pre-Budget Report - and warned that
the CBI was “troubled” by plans to reduce tax relief on pension
contributions for people earning more than £150,000.
Mr Lambert said the CBI had also been extremely disappointed that the
Chancellor failed to move on rates relief, on which he had made a “token
gesture” in November’s pre-Budget report. Nor has he reversed the policy on
empty properties.
He added: “We are disappointed that the Chancellor had nothing to say on next
year’s increase in National Insurance Contributions for employers which is a
tax on jobs — and that will not be the time for increasing taxes on jobs.”
BUDGET REACTION
David Cameron, Conservative Party leader: "Today everyone can see
what an utter mess this Labour Government and this Labour Prime Minister
have made of the British economy.
"The fastest rise in unemployment in our history, the worst recession
since World War Two, and the worst peacetime public finances ever known.
"As of today, any claim they have ever made to economic incompetence is
dead, over, finished.’’
"This Prime Minister has certainly got himself in the history books - he
has written a whole chapter in red ink - Labour’s decade of debt."
Liberal Democrat Leader, Nick Clegg: “Today we got a pick and mix
Budget of recycled announcements from a government skilled in raising
people’s hopes but incompetent at actually delivering help.
“This Budget is a political supermarket sweep of random promises, without even
a hint of a plan or any likelihood the promises will be put into practice.
The biggest disappointment in this Budget is its failure to sort out
Britain’s unfair tax system. To put money into people’s pockets to help them
make it through this recession.
“Britain’s taxes are too heavy on those who can least afford it. And too easy
to avoid for those who know how. The 50p rate will further encourage the
very wealthy to avoid tax unless we tackle the unfair loopholes they
exploit.”
Brendan Barber, TUC General Secretary: “There is much to welcome in
this Budget, particularly action on youth unemployment, some first steps in
creating a fair tax system and better support for the unemployed.
“There is some help for construction and a Strategic Investment Fund provides
real resources for Monday’s welcome industrial strategy. Pensioners will
welcome the increase in capital disregards. This budget clearly acknowledges
that the Government has a central role to play in turning the UK into a
competitive low carbon economy.
“But it is does not bring the same boldness and vigour to getting the real
economy right as the Government showed in dealing with the banking collapse.
The biggest drain on the public finances will be continuing mass
unemployment and we needed a bigger and better targeted stimulus to the
economy today. A half per cent boost in public spending is not enough this
year. Next year’s tightening is too much, too soon and is based on an
optimistic assumption that the recovery will start this year.
“In particular cuts in public spending – and these are cuts, not efficiency
savings – are absolutely wrong at a time when there is a collapse in demand
in the private sector.”
John Wright, Federation of Small Businesses National Chairman: “In what
has been the most crucial budget in decades, the FSB is disappointed that
small businesses have been largely ignored.
“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 boosted small businesses to the tune
of £400m.
“With a quarter of business failures due to late payment and around £38,000
owed to small businesses at any one time, Companies House should have been
given more powers to name, shame and fine companies which fail to pay on
time. The Government has missed an opportunity to save thousands of
businesses and the jobs they create.
“We welcome the fact that Capital Allowances for firms investing more than
£50,000 will double to 40 per cent.
“Small firms will be sorely disappointed with the 2p rise in fuel duty from
September which is just another tax at a difficult time.”
Lord Davies of Abersoch, the UK Trade and Investment Minister: “This is
a budget for business and a budget for trade. UK companies that take the
strategic decision to export can prosper in a global marketplace. Firms that
take up this help will be better positioned to grow when the world economy
picks up.”
“The extra £10 million, which will be spent over the next two financial years,
represents an additional 5% on top of UK Trade & Investment’s (UKTI)
current annual programme budget of £91 million. It will target UK firms with
a high potential for growth and top inward investors.
“This money will be well-spent. Independent research shows that every £1 spent
by UK Trade & Investment generates £16 in benefit for the UK economy. We
have helped 20,700 firms generate £3.6 billion in one year.
JOBS
Jane Milne, British Retail Consortium Business Director: “The Budget
left retailers still facing most of the people and property costs that will
prevent new investment and threaten the viability of retailers and their
ability to create and sustain jobs.
“Few share the Chancellor’s optimism that the economy will be growing
again by the end of this year. It’s crucial retailers are spared new burdens
and support for the sector isn’t ended prematurely.”
David Coats, associate director policy at The Work Foundation: "The
chancellor has recognised the need for decisive action to protect jobs and
help the unemployed – in particular unemployed young people. The £1.7
billion for Job Centre Plus to help with the extra numbers claiming benefits
is sensible and the job guarantee aimed at the under 25s out of work for a
year is very welcome. The new youth training programme, money for new places
at sixth form colleges, the flexible new deal for the long-term unemployed,
and 250,000 jobs in deprived areas offer a well-targeted political response.
"The balance between supporting mature industries that are struggling
(through the car scrappage scheme, for example) and boosting green
employment and fledgling industries is the right one. We also welcome the
change to a 50 per cent tax rate for top earners. Over recent years, too
much wealth has been diverted into the pockets of those who already have
plenty - leading to grave doubts about the fairness of how the economic cake
is carved up. It is right in principle that those who can pay more tax
should do so."
Lawrence Kay, Research Fellow in Policy Exchange’s Economics Unit, said:
“The official assumptions about unemployment don’t seem to tally well with
how much the Government is planning to spend on welfare to work. The extra
£1.7 billion that is to be given for the welfare-to-work services reveals
not only the true scale of unemployment that is expected, but that the
welfare reformers of the last decade have failed.
“The Government has been telling private welfare to work providers to expect
higher unemployment than the Budget itself suggests.”
HOUSING
David Adams, Head of Residential, Chesterton Humberts: “Useful
opportunities to boost the property market, a key engine for economic
growth, have been missed today. Extending the paltry reduction of stamp duty
for another three months is a slap in the face for those who continue to
suffer from the effects of an up to 30% decline in the property market.
“In a further blow to the London market, anyone earning over £100,000 will be
hit with higher taxes, a move which will speed the exodus of financial
professionals to Geneva and Zurich which have laid out the welcome mat and
are being touted as low tax world financial centres.
“The good news is all for Switzerland, where the French speaking cantons have
seen an unprecedented number of British buyers and are one of the few places
in Europe where house prices have held as a result of demand. These will now
become property hotspots.”
NAMING AND SHAMING OF TAX CHEATS
Simon Wilks, tax partner, PricewaterhouseCoopers: "This is a
completely new departure for HMRC and the question of taxpayer
confidentiality is a cornerstone of the UK tax system. HMRC is understood to
be influenced by the perceived success of similar regimes in other countries
and, in particular, Ireland. There will be important exemptions for those
making unprompted disclosures to HMRC or who make prompted disclosures
within certain time limits. Also no publication will be made for matters
which are under appeal.
50% TAX RATE
Anna Chapman, director in the private client services team at Ernst &
Young: The increase in top rate of tax to 50% moves the UK up from 19th
to 7th in the table of highest marginal income tax rates amongst OECD
countries.
This increase, together with the new restriction on pension contributions and
the highly complicated regime for non UK domiciled individuals announced
last year means that the image of the UK as an attractive jurisdiction for
internationally mobile individuals will suffer a serious blow.
Even below the £150,000 band, the 60% marginal rate at £100,000 caused by the
removal of personal allowances takes the UK to the top of the table.
Paul Kenny, GMB General Secretary: “GMB consider that the tax increase
for those earning over £150,000 is necessary as the tax burden needs to be
evenly distributed. We would have gone further with a higher rate for those
earning over half a million a year. We would also have closed down the tax
havens and tax avoidance loopholes.
GMB consider that they Chancellor should not have increased the duty on beer.
Instead he should have gone after the pubcos that are charging their tied
landlords 80 pence per pint more than they would pay in the wholesale market
for beer.”
Miles Templeman, the director-general of the Institute of Directors: "The
increase [in the top rate of income tax to 50 per cent] will affect very few
IoD members but it will have a damaging impact on the wider economy and
undermine the UK's attractiveness as a place to invest."
Douglas McWilliams, chief executive of the Centre for Economics and
Business Research: "Increased tax on high incomes and other such
measures could cost the government £800 million a year in lost tax revenue
as about 25,000 high end taxpayers would likely shift tax regimes. He added
that as a result up to 140,000 jobs could be lost over the next 3 years,
with the City of London’s GDP falling 3 per cent.
Michael Wistow, head of tax at lawyers Berwin Leighton Paisner: “This
Budget is hardly a recipe for motivating increasingly mobile taxpayers and
individuals to greater economic endeavour and reducing the rush of UK
companies migrating.
“Individuals and corporations are being squeezed on taxes. Personal tax rates
are increasing and tax incentives for pension contributions are being
curtailed.
“Some companies will lose tax reliefs in an arbitrary fashion. History shows
that increasing tax rates rarely achieve their objective of increasing the
tax take: individuals will now look to find other ways of earning money or
reducing tax liabilities."
ALCOHOL AND TOBACCO
Don Shenker, chief executive of Alcohol Concern: "Over the past 20
years successive governments stood by as alcohol became progressively more
affordable... The burden on our health service and police forces is
unacceptable. Alcohol misuse costs our economy around £25bn per year.
"Increasing tax on alcohol would be a positive first step towards
tackling this country’s alcohol problems. But supermarkets should not be
allowed to absorb duty increases and continue to deep discount and sell
alcohol at a loss - introducing a minimum price for alcohol will allow pubs
and bars to compete on a level playing field.’’
Deborah Arnott, chief executive of Ash: “This inflation-only tax rise
will do little to reduce smoking and the impact will be lessened further by
the continuing problem of tobacco smuggling. The Government’s new strategy
announced last year needs to be underpinned by tough new targets to reduce
the market share of smuggled tobacco.’’
TRANSPORT
Paul Williams, Chairman of the Retail Motor Industry Federation: “By
opting for a vehicle scrappage scheme in the Budget, the Government has
taken the opportunity to boost the new car market, while simultaneously
helping consumers buy a new car. The nation's car dealer network, which will
be in the front line for the duration of the scheme, has the expertise that
will enable the scheme to be a success, and will assist Government in the
implementation of the scheme.”
ENVIRONMENT
Richard Gledhill, head of climate change and carbon market services at
PricewaterhouseCoopers: "The Chancellor announced a range of
measures to encourage investment in energy efficiency, renewables and carbon
capture. These are likely to have a bigger impact on carbon emissions than
the headline-grabbing car scrapping scheme, which is more about selling cars
than solving climate change.”
David Nussbaum, chief executive of WWF-UK: “The health of the world
economy and our environment are the two huge global threats facing us today.
This Budget was the Government’s golden opportunity to propose solutions
that tackle both of these problems as one. We needed bold steps to create
new green jobs, strong carbon budgets and leadership on cutting emissions.
“While new money for the renewables sector during this difficult time is
welcome, as is government support for electric cars, these are small steps
that fall well short of truly addressing the urgency and scale of the
problems we face. The budget was rightly focused on the need to stimulate
the economy and create jobs however, what was announced is not the bold
leadership we desperately need to secure a truly low-carbon future.”
