Dia Chakravarty wrote for the Conservative Home website this morning, slamming the proposals to implement a new tax on supermarkets.
Twenty councils, led by Derby City, are calling for the right to impose a tax on large supermarkets, supposedly to be reinvested in the community and help small businesses. Retail outlets with a rateable value of over £500,000 would have to pay an extra business levy of up to 8.5 per cent.
Shocking new research conducted by our team over recent months demonstrates that Britain’s local authorities have long-term liabilities of more than £180bn, saddling future generations with today’s debt burden.
We found that local authorities in the UK had more than £180 billion in long-term liabilities on 31 March 2013, an increase of 8 per cent on the year before. Worryingly, this is almost seven times the amount raised in Council Tax in that year, meaning that those revenues are being used to service debt interest, rather than paying for essential frontline services.
On the positive side, some 214 councils decreased their long-term borrowing between 2012 and 2013, but some 105 councils increased their borrowing. 62 local authorities had long-term liabilities greater than or equal to their long-term assets. This is a real worry; it’s hard to see how those liabilities, often in the form of pensions, are going to be paid without increasing the amount that local authorities borrow. That means more of your council tax being spent on servicing debt interest rather than crucial frontline services.
Unless local councils take a hard look at their finances, and are honest about what they can afford, too many of our children and grandchildren are going to be left with a substantial bill. There is also a desperate need to wage a war on waste; with these huge liabilities to pay, councils can’t continue to fritter taxpayers’ money away. As if we didn’t need reminding, our debt clock offers some sobering numbers on the national debt – it’s terrifying to think that local councils are digging themselves into a £180bn hole as well.
Among the key findings of the research are:
Full data for each local authority across the UK can be found here.
Public finances data released this morning shows continued but slow improvement in the state of government accounts. Net borrowing in 2013-14 was just £107 billion, down from the £107.8 billion estimated in March for Budget 2014, the £111.2 billion in December last year for the Autumn Statement and also the £119.8 billion estimated in March last year for Budget 2013.
This £12.8 billion improvement, however, is put in perspective when contrasted with the June 2010 projection of £60.1 billion. Last March the Government thought the finances would be £59.7 billion worse than it expected them to be when they took over in 2010. Now we know they are only £46.9 billion worse than expected. An improvement but still very bad.
And all this borrowing has added up. At the end of April 2010, just before the May election, net debt excluding financial interventions stood at £834 billion. By the end of last month it had risen by an enormous £451 billion and now stands at a staggering £1,285 billion. See how our debt clock shows it rising every second!
We are still struggling under the weight of a ridiculously complex tax system that takes too much from our pockets, diverting our cash from the things we want to the things that politicians and bureaucrats want. These taxes gum up our housing markets, destroy jobs, lower our wages and kill off investment. Yes, the economy is growing again. But we should have been growing long ago and productivity and wage growth still disappoints.
Business projects are still not going ahead because tax makes the difference between profitability and loss. Personal taxes still act as a barrier between taking a job and not, especially for many who might be contemplating low paid work. And beyond that unnecessary complexity makes it all much worse than it needs to be. So tax reform is a necessary component of restoring incentives and therefore growth and prosperity we need.
And while we need to cut taxes, we also need to shrink the deficit harder and faster. That can only mean one thing. Politicians must join our War on Waste, root out unnecessary spending and put a stop to it.
A tiny room in Islington crammed with a kitchenette, dining table, wardrobe and double bed has hit the headlines due to its advertised rent of £170 per week. The alarmingly cramped appearance of the room combined with the high rent has been described as “sickeningly small” by Huffington Post and “depressing” by Time Out.
Perhaps inevitably, it has led to people saying that the landlord should be ashamed and that the politicians should ban people from being able to let out properties that they think are too small.
— XtraspecialOnesies (@Xtrasomething) June 4, 2014
— Mary Lane (@MrsMaryLane) June 4, 2014
One Guardian writer has even called for “the Thatcherite model” of private renting to be banned. Just like that.
The Thatcherite model of private renting. End it, now. http://t.co/aVPrNJgqf1
— Nadia Khomami (@nadiakhomami) June 4, 2014
Sadly, these commentators completely miss the fundamental point underlying what the sky high rents are telling us. The high price is a signal, it tells us that there is too little space relative to how much space is wanted. It does two things: it tells people to reduce the amount of space they use and it tells people to increase the amount of space available. Instead of addressing the problem (inadequate supply) they’re shooting the messenger (high prices).
The problem is that planning is getting in the way of the supply signal. Property owners know they can make lots of money by building more and bigger homes in places like this, where people really want to live. But the planning system stops them. That means all the pressure to match supply and demand is left to the demand side. Prices just rise until the number of people who are prepared to pay enough is whittled down to match the number of available homes.
Making it more expensive by tightening up regulations won’t help matters. We need to do precisely the opposite. We need to remove and relax planning restrictions to allow more building in the places where people actually want to live. That means rethinking both the greenbelt and restrictions on how tall buildings are allowed to be as well as scrapping some of the building and environmental rules that increase the cost of construction. The only alternative is ever higher prices and ever more ridiculous property ads.
Joe Hockey, the Treasurer of Australia (the equivalent of our Chancellor of the Exchequer) delivered his first budget yesterday with speedy deficit reduction the clear priority. Australia’s public finances are in far better shape than Britain’s. We have entered the fifth year of George Osborne’s fiscal consolidation and are still on course to borrow £96 billion this year. It’s the first time in 5 years the borrowing number can be written down using fewer than 12 digits.
This year, the UK government will borrow the equivalent of 5.5 per cent of GDP compared to 1.6 per cent in Australia. Even in 2009-10, at the height of the global financial crisis, the Australian government only needed to borrow 4.2 per cent of GDP.
We won’t actually start paying back our enormous debts until the 9th year of Osborne’s plan, and many of his future savings are as yet unspecified. Hockey’s plan will see debts being paid back in four years and there’s a lot less to pay.
Public Sector Net Debt in the UK will hit £1.36 trillion this year, 77 per cent of GDP. Australian Government general government sector net debt is $226 billion (£126 billion) – little more than the UK borrowed in 2011-12 alone.
The fiscal consolidation in Australia will be achieved through a mixture of some ugly, controversial tax hikes and some sensible savings.
Major tax measures:
But despite the generally good numbers, the Australian government has decided that having run five deficits in a row, something needs to change. Their fiscal responsibility is commendable, but some of the methods leave a lot to be desired.
The “Temporary Budget Repair Levy” is a blatant breach of Tony Abbott’s promise of “tax cuts without new taxes” in opposition. There’s no justification for tax hikes with the public finances as they are and growth forecast at 3 per cent this year and 4.75 per cent next year.
Only time will tell how much these broken promises undermine Abbott’s credibility.
Teachers are on strike today. One of the reasons is their anger over pension entitlements becoming less generous after reforms become effective in April 2015. These reforms don’t much affect the rights to pensions they’ve built up already. The changes are primarily about what additional pension rights they’ll be entitled to thereafter.
But there’s a huge problem with the cost of these pensions. As the unions fight for more generous terms and the Government decides how much of the next generation’s money it is prepared to promise them, they aren’t recognising the true scale of how much those promises will cost.
The Government has not put a single penny aside to pay for them and it’s also in denial about just how big those commitments are. Across the public sector, it says that unfunded pension schemes have liabilities worth £1.1 trillion. The problem is that this number is calculated using an artificial measure of the how to value what payments in the future are worth in today’s money.
Instead of using market ‘discount rates’ to account for how money set aside to pay for future commitments should grow, the Government invents its own number and this number makes the size of the liabilities seem a lot smaller than they really are. The TaxPayers’ Alliance asked finance and pensions expert Neil Record to estimate the difference between the real and official size. He found that the Government is downplaying the value of its promises by a colossal £610 billion.
The real value of these commitments is not the £1.1 trillion the Government claims. It’s £1.7 trillion, a figure which has swelled by £1 trillion since 2003-04. In other words, it’s been getting bigger by £100 billion every year, on average. And that’s on top of the £1.2 trillion in the official National Debt.
Private sector pension schemes aren’t allowed to invent their own discount rates to make their liabilities seem rosier. The Government shouldn’t be allowed to, either. It’s time they were a little more honest about how much public sector pension promises will cost taxpayers.
Office for Budget Responsibility economic models replicated by the Financial Times have revealed a new £20 billion black hole in the public finances. The news comes on top of the repeated deterioration in deficit forecasts since 2010 and means that the public sector would potentially continue living beyond its means until 2020.
Our War on Waste spending factbook highlighted the deterioration of deficit forecasts for 2014-15 in the graph shown above (click here to share it on Facebook, and here for Twitter). It’s clear that while the economy seems to be recovering, particularly with respect to private sector employment figures, the public finances are still a mess and tough decisions have to be made on spending.
This isn’t necessary only to close our still huge deficit but also to allow room for the tax cuts the country needs to sharpen economic incentives, boost growth and ease the financial burden on taxpayers. Mr Osborne should look again at spending when he delivers his budget in two weeks. It’s time he declared a War on Waste.
Could Stamp Duty be contributing to unemployment rates? That was the question posed by the Head of Residential Research, Adam Challis, of property group Jones Lang LaSalle in response to a presentation at Chatham House by Professor Andrew Oswald of Warwick University about the correlation he found between levels of owner-occupancy and unemployment.
These are substantial sums of money… Stamp Duty must add substantial levels of immobility and immobility is associated with higher levels of unemployment. Nobody has looked at the effects of that on unemployment.
Oswald’s contention is that owner-occupancy causes higher levels of unemployment in the general population. While he does not claim there is proof that higher levels of unemployment are caused by owner-occupancy levels, he does provide evidence that they are correlated and he suggests three reasons which might explain why more owner-occupancy does cause higher unemployment.
First, owner-occupiers are less likely to move when they get a new job and this results in more commuting which in turn leads to higher commuting costs and congestion for others. This, he says, might deter some people from taking a job and so add to the unemployment rate. Secondly, owner-occupancy leads to reduced mobility which in turn means less knowledge flow through interaction. This, he says, might reduce everyone’s productivity and therefore could increase unemployment. Finally, owner-occupiers are more likely to object to new businesses opening near them and other planning matters. So higher levels of owner-occupancy lead to greater levels of resistance in the planning system which, they say, could be reducing the speed at which businesses are created and expanded, leading to higher levels of unemployment.
It’s an interesting theory. And if it’s true, and if labour immobility is the cause of higher unemployment, then there’s a good case to say that as well as all the problems it causes in the housing market, Stamp Duty might also be causing higher unemployment, too. Which is why it is interesting that Exchequer Secretary to the Treasury David Gauke told a Conservative party conference fringe meeting held by the Institute of Fiscal Studies and the Chartered Institute of Taxation that the problems caused by the ‘slab’ rate structure of the charge are ones that the Government “should seek to address“.
Does that mean we might hear some good news in the Autumn Statement in less than six weeks time? Let’s hope so. But if you know of anyone who hasn’t already signed up to StampOutStampDuty.org, please ask them to add their names to the campaign. It automatically sends a message to your MP for you, adding a little extra pressure for reform and cuts to this truly awful tax! We need all the help we can get.
Households in the the poorest fifth of income distribution spend £1,165 a year on VAT and £1,286 on ‘lifestyle taxes’, according to new research from the Institute of Economic Affairs. The amount taken from the poorest fifth of households in lifestyle taxes represents 11 per cent of their disposable income.
But these averages mask the harsher reality for those who do gamble, drink, smoke and drive as they include those who do none of those things. Between 15 and 17 per cent of the average income of smoker in the bottom fifth is taken in tax on their tobacco. Between two and four per cent of average income is taken from drinkers in that same fifth of the population. And eight per cent of the income of a typical low-income driver is taken in motoring taxes.
That all adds up. People in the bottom fifth of the income distribution who drink moderately, smoke and drive a car will find the Chancellor confiscates almost 40 per cent of their disposable household income through VAT and lifestyle taxes.
The Coalition have taken some good steps towards taking less money from those who don’t have enough to pay for the basics but as ever the story is mixed.
They have raised the tax free personal allowance for Income Tax very quickly so that it will be £10,000 next year. But it still too low and National Insurance still kicks in at around £7,500 a year. They have promised to freeze Beer Duty and Fuel Duty for the rest of the Parliament, but duty on other alcohol will carry on rising Fuel Duty is still too high. And they have cut Corporation Tax, which economic analysis shows is largely paid for by workers in lower wages, from 28 to 21 per cent. But it is still too high and they have not cut employer’s National Insurance, the jobs tax, which remains at 13.8 per cent.
A wide variety of taxes are making life difficult for everyone, and especially for the poor. Whether it’s taxes like Fuel Duty, VAT or alcohol taxes which impoverish people by making the things they need more expensive, or whether it’s taxes like Income Tax, National Insurance or Corporation Tax which mean they end up taking home less of their own money, all of them play a destructive role in the lives of the people the Government is supposed to be helping.
We urgently need lower taxes both to relieve people’s budgets and to encourage enterprise to get the economy back on track. That means cutting back the size of our still far too bloated public sector to a level we can afford.
Writing in City A.M., Matthew Sinclair argues Labour’s policy announcements on Corporation Tax and energy prices would be economically damaging for Britain.
ED MILIBAND made two big new pledges in his speech yesterday: lower business rates for small businesses, paid for by higher corporation tax on larger firms; and a freeze in energy prices for 20 months from the date of the next election. Economic reality would quickly bite for any government that tried to introduce either policy.
There is nothing wrong with cutting business rates. Lower rates would be a relief for many – particularly small firms and retailers. They often effectively pay half as much again on top of rent. But higher corporation tax rates for larger firms would not raise government revenue, except maybe in the short term. Just as firms in competitive markets cannot increase profits by charging higher prices, governments cannot just hike taxes and expect more revenue in return. Higher corporation tax will drive away investment and mean fewer jobs, lower wages and – in short order – less revenue for the state.
New research published today by the estate agency Knight Frank has revealed further weaknesses in the case for a new ‘Mansion Tax’. In 2012 Vince Cable proposed a levy of 1 per cent annually on properties valued at over £2 million. Politicians have suggested such a levy would raise between £1.7 billion and £2 billion annually.
However Knight Frank concluded that the with the proposed threshold and tax rate HMRC would raise just £1.3 billion. Additionally, in order to raise the targeted revenue, the threshold at which homeowners would have to start paying the tax might have to be reduced as low as £1.25 million nearly tripling the number of people affected from 55,000 to 140,000. What is being sold as a ‘tax on the rich’ will eventually drag more and more taxpayers down.
Similar to the TPA’s own research into the Stamp Duty time-bomb, the Knight Frank report highlighted impact of house price rises on who would pay the tax. Liam Bailey, Head of Research at Knight Frank, said: “Over the past 10 years house prices have risen by 69 per cent. Assuming a similar rate of growth in the future, all houses worth more than £1.2 million today would be paying a mansion tax 10 years from now, meaning that the number of homes covered would nearly triple from 55,000 to 157,300.”
The proposal for a Mansion Tax would further contribute to pre-existing problems in an already over-taxed and over-regulated property market. Instead of making pernicious political gestures the Government should focus on relaxing regulations which would allow more affordable housing to be built.
The key findings of the Knight Frank report are: