To escape from paying the higher rate of tax, people who earn more than £150,000 are resorting to legal tax avoidance schemes.
Mounting pressure is already on the Chancellor to axe the 50p rate next year, although the move has been met with criticism, however, this news will add further pressure onto Mr Osborne to relieve high earners from the tax rate.
Paul Johnson, director of the IFS, said: “It looks like the 50p rate may be too high and that it is possible it will reduce tax revenues.
“It could lead to more people investing in tax avoidance, illegally hiding their income or even leaving the country altogether. I wouldn’t have introduced the 50p rate in the first place.”
The IFS also said that the highest rate that could be introduced without tax revenue being reduced is around 40 percent.
In response to the calls to axe the tax, Mr Osborne has also called on HMRC to review the tax rate over the next year and to see what impact it has on the economy. Previous figures released by the Treasury show estimates of £2.7 billion being raised each year by the tax.
The 50p tax rate was introduced by Labour, and currently 320,000 people are hit by the tax, or one per cent of taxpayers, according to HMRC.
The Government is divided on whether to keep the tax on high earners in place. Nick Clegg believes that if it is axed it should be replaced with a “mansion tax” on homes worth more than £2 million.
The IFS claims there are other methods in order to tax the wealthy. Mr Johnson said: “Wealth inequality has grown very strongly over the past few years, so if you are worried about it, inheritance tax is relatively useful.”
The review of the UK tax system, which was done over five years, will not be welcome news for the Chancellor. The IFS said the economy was losing tens of billions of pounds due to the bureaucracy and inefficiencies of Britain’s current tax system.
"For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 660 )The rising cost of utility bills has pushed the Consumer Prices Index (CPI) inflation to 4.5 percent in August, up from 4.4 percent in July, according to figures from the Office of National Statistics (ONS).
The ONS also said that housing, water, electricity and gas prices increased by 5.1 percent year-on-year, which is the highest annual increase since July 2009.
Utility bills have hit a two-year high and clothing costs have seen their biggest increase on record. The ONS said clothing and footwear had provided the biggest rise in prices, with the 3.7 percent monthly increase a record between July and August.
The Retail Prices Index (RPI) measure increased to 5.2 percent from 5 percent.
Figures from ONS also showed that the UK's trade deficit in goods and services had remained unchanged from July at £4.45bn. The deficit on trade in goods was £8.92bn, while the surplus on services was £4.47bn.
The inflation rate is well above the 2 percent target set by the Bank of England. The Bank claims that inflation is above target mainly due to VAT rising to 20 percent at the beginning of the year and the increases to global energy prices.
Many analysts think the rate of CPI inflation may rise further, possibly touching 5 percent, before falling back towards the end of the year or at the beginning of next year.
Howard Archer of IHS Global Insight said: “There were no nasty surprises on the inflation front, which will likely reinforce the Bank of England's central view that inflation will head down markedly after likely peaking around 5 percent in the near term.
"While the rise back up in consumer price inflation to 4.5 percent in August (its equal highest level with April and May since October 2008) is hardly pleasant news, it is fully in line with expectations and does not materially change the monetary policy outlook. It is evident that any interest rate hike is off the Bank of England's agenda for a considerable time to come given the current softness of the economy and weakened growth prospects. Indeed, we do not expect the Bank of England to raise interest rates until 2013.”
Jonathan Loynes of Capital Economics said: “August's consumer prices figures brought further hope that the peak in inflation is close. We still expect inflation to be well below its 2 percent target at the end of next year.”
"For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 613 )There is a bleak outlook for economic growth following the latest optimism index from BDO revealing that business confidence has hit a two-year low.
The BDO Output index, which measures the state of companies' order books, fell from 95 in July to 93.6 in August, which suggests that the economy could contract in the third quarter.
The score of 93.6 is the lowest score for 26 months, only scores above 95 indicate growth.
Peter Hemington, partner at BDO said: "It's worrying to see such a reliable growth indicator fall to a two-year low.
"Our predictions should serve as a wake-up call to policymakers that action must be taken to avoid economic contraction.
Mr Hemington also said the Bank of England may likely be forced to implement quantitative easing, having voted against renewing its quantitative easing programme last week.
"Those asking for a rise in interest rates are doing so prematurely. What is needed and what we have long called for is a further round of quantitative easing, and it is heartening to see this stance becoming an increasingly credible position. The MPC must therefore give QE3 profound consideration if we are to arrest the forecasted economic slump,” he added.
However, the forward-looking optimism index was more optimistic, coming in at 95.5, forecasting slight growth for the beginning of next year.
BDO said the index has been “teetering around the 95 point for three consecutive months”.
There was also some optimism regarding expectations of inflation, which showed its first monthly fall since December 2010.
The reports from BDO follows a report by Organisation for Economic Co-operation and Development (OECD) who slashed its growth expectations for the UK and said the country was at "significant risk" of a double-dip recession.
"For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 601 )Amid fears that customers will bear the brunt of the “biggest reform on the financial sector since 1930s”, Chancellor George Osborne yesterday signalled that he will give the controversial bank reforms the go ahead.
The Chancellor said it would be “very foolish” not to take action to prevent another financial crisis.
Although there has been opposition from the banks, next week the Treasury is expected to press ahead and accept the need for stricter “firewalls” in order to insulate High Street retail banks from their extended arms that focus on risky investment banking.
Mr Osborne said: “This country had probably the greatest banking crash in its history a couple of years ago.
“It would be very foolish not to learn the lessons of what went wrong and to protect British families from having to bail out the banks again on the scale they did a few years ago.”
Independent experts have calculated that the cost of the reforms could be as high as £15bn, and with charges expected to rise for customers, it will be them who will be picking up the price.
Sir John Vickers, the chairman of the Independent Commission of Banking, admitted that it was likely that there would be “some effect” on costs to customers.
Mr Vickers said the changes could raise the level of mortgage rates up to around one percent, which would add almost £1,000 a year to the cost of paying a typical mortgage of £140,000.
So how will the money be spent? It is expected the reforms will see High Street banking arms being required to have separate staff, funding arrangements and computer systems from investment banks.
The move is designed to ensure the banking industry will not be thrown into another financial crash, as High Street banks would be unaffected if a bank’s investment divisions is thrown into financial difficulty with the changes in place.
"For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 575 )The Bank of England’s Monetary Policy Committee (MPC) is holding UK interest rates at a record low of 0.5 percent.
Economists had predicted the rate, which has remained the same since March 2009, would remain unchanged due to concerns about the strength of economic recovery.
The MPC also chose not to increase its quantitative easing (QE) programme.
Howard Archer, chief UK and European economist at IHS Global Insight, said: “Evidently, most MPC members maintain the view that further QE is not warranted yet, particularly given current elevated inflation levels and still significant upside inflation risks.
“However, unless the economy shows signs of picking up soon and global financial market conditions stabilize, the pressure for Bank of England action will mount and it could very well pull the QE trigger within the next few months.”
It is bad news for those who rely on the interest on savings for an income, such as pensioners, who will continue to suffer due the low level of rates.
Banks recently revealed that savers have missed out on £43 billion as a result of low rates. The figure comes from comparing their income before and after the Bank cut rates to 0.5 percent.
Whilst savers will continue to bear the brunt, families with mortgages will continue to benefit from the low interest rates. This is due to savings in banks and building societies being outstripped by mortgages, therefore mortgage borrowers have gained by a wider margin.
The figures show that mortgage borrowers have paid £51bn less in monthly interest.
Although the Bank of England issued no comment, minutes from the meeting due in a couple of weeks are likely to show policymakers discussed options for injecting more stimulus into the economy, against a backdrop of sharply weakening conditions in the United States and euro zone and ongoing financial market turbulence.
"For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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