The topic on the table is the thorny one of bank bonuses. With so many businesses and families in the UK having to tighten their belts – and not a few wondering how they will pay their heating bills as another bout of cold weather settles in – a winter round of generous big bank bonuses is something the coalition government is keen to avoid.
Mr Cable said at the weekend that the banks needed to show “real restraint and social responsibility” and that the coalition was signed up to “robust action”.
He hinted at the possibility of some form of taxation if necessary but added: “We would rather they (the banks) accepted that they had wider obligations to British business and to the public."
The British Bankers Association (BBA) said the sector "truly understands people's concern over pay" and has made reassuring comments about a “radically different” bonus system that involves locking away much of the payments for several years.
BBA spokeswoman Angela Knight also makes the point that the UK's financial services industry had to compete for business and talented people, adding: "The banks are major employers and pay more tax than any other individual sector, where financial services as a whole contributes £1 in every £10 raised for the Exchequer.”
No doubt that’s fair enough. But given what might be called the “special relationship” between the British taxpayer and the banks – partly based on the role the banks played in shaping our current economic climate and partly on the millions of pounds the government has poured into propping up some of the biggest names of British banking – there are many people out there who might be hoping that it wouldn’t need a meeting with Mr Osborne and Mr Cable to get the banks to do the decent thing.
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( 3.1 / 929 )The Bank of England’s Monetary Policy Committee plays a major role in the UK economy, setting the Bank of England (BoE) base rate, so it may be a little concerning that its members seem uncertain about where they should be heading next.
While the majority of members have continued to take a ‘wait and see’ approach, keeping interest rates at their current record low levels but holding back from additional Quantitative Easing (QE), two members – Adam Posen and Andrew Sentance – have increasingly gone public on their views that a change of approach is needed.
The problem is, they favour a different approach. Noting persistent above-target inflation, Mr Sentance thinks interest rates should be increased to prevent the economy overheating, while Mr Posen argues that since inflation has been caused by external factors – such as increased energy costs and a weaker pound – hiking rates would make no difference, and actually what is required is more QE to prevent the economy falling back into recession.
With such diametrically opposed views on the committee, it is perhaps unsurprising that the end result has been somewhere between the two, but rates cannot stay unchanged forever, so it will be interesting to see which view prevails. Next month sees the increase in VAT to 20 per cent, so a further jump in inflation is inevitable, but if it fails to come down after that, the BoE may be forced to act to maintain its credibility.
However, increasing rates too soon is likely to have a detrimental effect on growth and jobs, leaving the committee with a delicate balancing act. Furthermore, with the government not keen on stimulating the economy through tax cuts or spending rises, that leaves Quantitative Easing as the only means of stimulating the economy if growth does go into reverse.
While the Bank has taken its share of criticism over recent months, there is no doubt that it has a difficult balancing act to perform and it will be interesting to see which school of thought prevails.
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( 3 / 860 )Yesterday’s unemployment figures make for some fairly bleak reading. A 35,000 hike in those seeking work in the three months to October has taken the total number of people seeking work to 2.5 million – “the grim milestone”, as TUC General Secretary Brendan Barber describes it – and, as Mr Barber also points out, the government’s austerity measures have still to take effect.
Today we have an indication of just what those austerity measures will mean, with reports that around 100,000 public sector workers will be told that their jobs are at risk in the run-up to Christmas as councils, police forces and other public services seek to implement reduced budgets for the new financial year starting in April.
And the public sector jobs axe has already started swinging. According to yesterday’s unemployment statistics, the rise in the jobless total in the three months to October was due almost entirely to 33,000 jobs going in the public sector.
A week or so ago, the TUC warned that public sector cutbacks would hit women hardest. Women make up 65 per cent of the public sector workforce, it said – 68 per cent within councils – and as a result of jobs going due to spending being reined in, many thousands of women are likely to find themselves out of work.
They already seem to be suffering disproportionately. Yesterday’s jobless figures show that while male unemployment rose by 11,000 on the quarter, the number of unemployed women shot up by 24,000 in the same period to reach 1.04 million, the highest figure since the three months to May 1988.
Women make up half the national workforce but still face barriers in employment. Earlier this year, research by the Chartered Management Institute led it to warn that girls born in 2010 would probably have to work for around 40 years in what it calls “in the shadow of unequal pay”.
The recession and our halting steps towards recovery are touching on many aspects of our national life. But it would hardly be progress worthy of the 21st century if one scar left by this bruising journey – not to mention an enormous waste of talent – is that women find it increasingly difficult simply to go out to work.
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( 3 / 771 )Let’s say you are holding a late summer barbecue. The weather forecast looks good but, just in case of an unexpected downpour, you probably make some contingency plans – moving the barbecue into the garage, perhaps, or transferring the cooking to the kitchen.
Or you’ve given your favourite restaurant a call to book a table for Saturday night. It turns out there’s a big party coming in and you’re out of luck – so you switch to your second favourite place instead.
Life is full of occasions when, consciously or not, we have a Plan B in place for when things don’t quite work out as we’d hoped.
So some of us may find it more than a tad concerning that, according to the Daily Mail today, leaked information reveals that David Cameron rejected advice from Cabinet Secretary Sir Gus O’Donnell, Britain’s top civil servant, that the coalition government should draw up a Plan B in case the economy tips into recession next year.
On the one hand, you can admire Mr Cameron’s apparently rock solid confidence in the coalition’s economic strategy delivering the results the government is looking for.
On the other, you might think that, just in case the recovery falters, it would be a good idea to have a plan to fall back on, to avoid the coalition having to hastily cobble a strategy together without having thoroughly thought through its contents and consequences.
In reality, common sense suggests that it’s reasonably safe to assume that there are contingency plans tucked away somewhere in Whitehall for keeping the economy on track in a variety of circumstances. The alternative is a little too scary to contemplate for too long.
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( 3 / 810 )For the first time, the government has published next year’s Finance Bill in draft form, giving people time to comment on the proposals.
The chancellor has stated that the reason for doing this is to provide a more predictable and stable tax system, and to allow for greater scrutiny of the changes proposed.
The Finance Bill 2011 will also legislate for the annual changes in taxation rates that have already been announced.
Separate consultations have been launched for some measures where comments are specifically sought, although comments will be accepted on any of the proposals.
These are some of the more significant proposed changes:
Pensions
Obligation to purchase an annuity by 75 will be abolished, effective from April 2011. This should enable an individual with a lifetime pension income of at least £20,000 a year to draw down pension funds without any cap.
As previously announced, the annual allowance for pension contributions will be reduced from £255,000 to £50,000 from April 2011 and the lifetime allowance to £1.5million from April 2012.
Income Tax
Rates will remain at 20, 40 and 50 per cent, with the Personal Allowance set to increase to £7,475 for 2011/12, and the basic rate limit to be reduced to £35,000 for 2011/12.
Corporation Tax
Next stage in the series of ongoing reductions will be confirmed, taking the main rate from 27 per cent to 26 per cent from April 2012 and the small profits rate from 21 per cent to 20 per cent.
Associated companies
Rules on ‘associated companies’ – designed to prevent misuse of the small companies corporation tax rate – are being relaxed to only catch cases of ‘substantial commercial interdependence’.
Taxation of foreign branches
Further exemptions from the Controlled Foreign Company (CFC) regime are proposed, as well as a permanent election for all of its branches to be exempt from UK tax on the profits of its overseas branches.
Controlled foreign companies
There are various proposals for exemptions for companies for certain transactions with CFCs, with little connection to the UK.
Corporate capital gains
Following consultation on simplification of capital gains rules for groups of companies, it is proposed that where a company leaves a group as a result of a disposal of its shares, a degrouping charge will be taxed as additional proceeds for the disposal.
Corporate tax anti-avoidance rules
Study into perceived abuse set to be completed by 31 October 2011.
Disguised remuneration
Legislation to be introduced to ensure income tax and National Insurance are not avoided through the use of trusts or other similar vehicles.
Bank Levy
Levy will be 0.05 per cent from April 2011, rather than 0.04 per cent as previously announced, rising to 0.075 per cent in 2012.
Childcare
The level of tax relief on childcare vouchers and directly-provided childcare will be made the same for all taxpayers.
The obligation on employers to make childcare schemes available to all employees will be removed
Furnished Holiday Lettings Relief
Minimum lettings period to increase to 210 days a year, of which 105 are actually let, but relief will in future be available on homes throughout the European Economic Area.
HMRC powers
In April 2011, the government will introduce legislation to allow HMRC to obtain security from employers where PAYE is seriously at risk.
Comments on the draft legislation can be submitted until 9 February 2011. For more information see www.hm-treasury.gov.uk.
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