Mr Tucker said that the Bank should be considering such ideas, as they would mean that high street lenders, such as the banks, would pay the BoE to place their money with it.
This in turn should encourage more lending to businesses and households, as the Bank’s current Funding for Lending Scheme (FLS) has shown, particularly with mortgages. However, it could also lead to a reduction in the interest paid on individual savers’ accounts held with high street banks, as has also been witnessed.
The Bank has considered cutting rates from their record low of 0.5 per cent in the past but decided against doing so for fear of bankrupting a number of smaller building societies.
However, to get round the problem, the Bank is reviewing a possible change to its remit so it can set a separate interest rate specifically for excess deposits placed by financial institutions at the central bank.
There is precedent for this, as the European Central Bank already has two rates, a base rate and a deposit rate. If this were to be implemented in the UK, it would protect mortgage lenders, who cannot afford to cut their base rates any lower.
While as far as small businesses are concerned, Mr Tucker referred to them as the lifeblood of the economy and said that more should be done to help them.
He therefore suggested extending the FLS to non-bank lenders, such as insurers and decried the fact that small firms are almost wholly dependent on the high street banks for any form of finance.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3.1 / 522 )Chancellor George Osborne is facing calls to cut Capital Gains Tax (CGT), as figures revealed that the rise did not bring in any extra revenue and in 2010 cost the Treasury money.
A report published recently by the Adam Smith Institute revealed that the rise in CGT from 18 per cent to 28 per cent for most taxpayers, on 22 June that year, showed a marked fall in revenues over the 70-day period between the start of the tax year and the date of the rise; whilst the Entrepreneur Relief (ER) rate was kept at 10 per cent.
There was a 76 per cent drop in normal disposals for post-23rd June figures, because figures are not available for the equivalent split for pre-June. This is because many people sought to realise gains before the rate increased, knowing that the Coalition Agreement had committed the Government to a sharp increase in CGT rate.
In addition, there was also a 34 per cent drop in the 10 per cent ER disposals. However, according to the Institute, this highlights the fact that CGT is effectively a voluntary tax, paid only when people choose to dispose of assets.
If individuals perceive rates to be too high, they choose to keep assets, such as property and shares, rather than dispose of them. Only a few people are forced to sell assets and many of these are the elderly, who build up assets throughout their lives and then cash them in to live on.
As a result of high CGT rates depressing economic activity and preventing the flow of capital to where it can be most productively used, both economic growth and government revenue are lowered, hence the Institute’s calls for CGT rates to be cut to their pre-2010 levels.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 530 )In the first such move since the 1970s, ratings agency Moody’s has downgraded the credit rating of the UK from triple-A to Aa1 because of what it calls “weak prospects” for the British economic growth.
Credit ratings are issued by credit rating agencies, which are private companies who sell their financial analysis to investors. They mark potential investments using a scorecard system and each agency uses different ones. Effectively, the ratings are an indicator of how likely the agency thinks a debt will be repaid.
The one Moody’s uses goes from Aaa to C and so this move means that the UK’s creditworthiness has been downgraded by one notch. However, it is interesting to note that the only two countries in the world’s major industrialised nations to still have a triple A rating are Germany and Canada.
In fact, when the US lost its triple A rating in 2011, the amount it had to pay to borrow actually went down, as investors still viewed the country as one of the safest bets in the world, regardless of the rating.
In addition, the credit rating agencies themselves lost credibility after the financial crisis, when they were found to have given top ratings to investments that turned out to be worthless.
It could therefore be concluded that the downgrade is not particularly important, except that during the election, Chancellor George Osborne vowed to defend the country’s triple-A rating, which can help keep down borrowing costs.
Unfortunately a very slow recovery from the financial crisis has pushed back by at least two years the Government's goal of largely eliminating the budget deficit by the time of next election in 2015.
However, from a political point of view, the downgrade could be important, as critics are now saying that the Chancellor’s fiscal measures are failing and that Labour has called it a “humiliating blow”, while Mr Osborne has continually used the threat of a downgrade as a justification for the scale and speed of deficit-cutting measures.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 693 )HM Revenue & Customs (HMRC) has published its first list of tax dodgers, which highlights "deliberate defaulters" found during the department’s investigations into their affairs from April 2010.
This list features nine names – including a hairdresser, a coach operator and a knitwear manufacturer – each of whom had not paid more than £25,000 of tax.
Individuals and businesses named on the list received fines from a few thousand pounds upwards. Cheshire-based wine retailer, The Trade Beverage Company Ltd, was fined £291,830, while a penalty of more than £17,000 was imposed on hairdresser Joseph Tyrrell for dodging tax between October and December 2010.
According to the government, the publication of the names sends a clear signal that cheating on tax is wrong, and reassures the vast majority of people who pay their taxes that there are consequences for those who refuse to tell HMRC about their full liability.
The department also hopes that publishing the list will encourage defaulters to make a full and prompt disclosure and cooperate with HMRC to avoid being named.
However, with the total tax owed by those on the list amounting to less than £1m, Treasury Minister David Gauke was asked why no large corporations were included on the list.
Mr Gauke replied that HMRC was taking action to close legal loopholes, as well as to expose those promoting aggressive tax avoidance schemes.
Chair of the Commons Public Accounts Committee, Margaret Hodge called the publication of the list an “amazing” step forward.
“Publicly naming and shaming does act as a deterrent, as we demonstrated over the Starbucks and Amazon hearing,” she added.
However, she also hoped that HMRC would not just focus on individuals and small businesses, as the general public does not want to see big global corporations “getting away with it”.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 630 )For only the fourth time since he became Governor of the Bank of England, Sir Mervyn King was overruled by other members of the Monetary Policy Committee (PMC), this time over quantitative easing (QE).
The minutes of the meeting revealed that three members, including Sir Mervyn, voted to increase QE by £25bn to £400bn, whereas last month, only David Miles wanted to restart the programme.
Last month the Bank raised its forecasts for inflation from those made in November, warning that inflation would hit 3 per cent later this year and not fall back to the Government’s 2 per cent target until the beginning of 2016. Under normal conditions, the Bank would be expected to consider raising interest rates to offset such a rise.
However, officials said they “stand ready” to increase quantitative easing to support the recovery, though they still questioned the effectiveness of current policy tools for easing credit strains in the economy.
In a wide-ranging discussion on the need for “targeted” measures, they said some may be beyond the scope of the central bank and fall under the province of other government departments.
The minutes reported that growth remained subdued and the economy continued to face a number of headwinds, so a case could be made that, if further stimulus was required, policy interventions more targeted at particular frictions or market failures in the economy were likely to be more effective in current conditions than further asset purchases.
Other policies discussed were a possible extension of the Funding for Lending (FLS) cheap credit scheme to “non-bank lenders”. In addition, using QE to buy assets other than gilts and a reduction in interest rates below 0.5 per cent were discussed and, once again, dismissed.
Following publication of the minutes, the pound fell sharply to a 15-month low against the Euro and fell to the lowest since June versus the dollar.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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