Budget 2009: Gordon Brown declares class war with tax on high earners

Gordon Brown has been accused of launching a "class war" against Middle Britain as he introduced a new 50 per cent top rate of tax to make the wealthy pay for the catastrophic state of public finances.

Casting aside more than a decade of New Labour ideology, the government broke a key election manifesto promise by announcing an increase in income tax for those earning more than £150,000.

Alistair Darling, the Chancellor, also announced that the highest earners will lose valuable tax breaks on pension savings, as part of a package of measures that will see the tax grab from high earners raising up to £5.5 billion a year - an average of £18,333 annually per person.

The surprise new measures - which mean Britain will have the highest top rate of any major economy in the developed world - came as Mr Darling was forced to lay bare the true extent of Britain's levels of borrowing in his Budget.

In the worst economic forecast since the Second World War, he said he planned to borrow another £700 billion over the next five years, taking the national debt to £1.4 trillion.

Mr Brown and Mr Darling were accused of indulging in party politics at a time of national crisis by seeking to exploit the divide the Tories' on tax policy.

It was also suggested that the Prime Minister was returning to Old Labour policies designed to shore up Labour's core vote ahead of an election next year that he is on course to lose.

Labour MPs in the party's heartlands will welcome the move and ministers will argue that taxing those on very high salaries is popular among many voters.

But in raising the top rate of tax the government risk alienating the middle class voters that swept Tony Blair to power in 1997.

Michael Fallon, the senior Conservative MP and member of the Treasury Select Committee, said: "This is undoubtedly a bit of class war from Gordon Brown. He is stoking up Labour MPs and the party faithful before the election but there is no doubt this is the end of New Labour.

"The higher rate of tax was a compact between both main parties. It was agreed that the certainty that the 40p rate gave was good, but that has now been shattered once and for all."

The new top rate of income tax will be brought in next April, before the likely May election. Gordon Brown had promised in the 2005 election manifesto not to raise to the top level of tax.

It led to fears that there will be a "brain drain" from Britain as higher earners are driven away by punitive levels of tax.

Mr Brown has consistently claimed to have ended "boom and bust". But the true state of public finances and the amount of government borrowing needed to repair them shocked many.

The Government first borrowed money in 1692. It took 300 years for the level of Public Debt to reach £165 billion in 1992, and yet is £175 billion this year alone. When Labour took office in 1997, debt was £350 billion.

Mr Darling - whose second budget co-incided with the release of figures showing unemployment had risen to 2.1 million - claimed that the government's books would be balanced within a decade.

But the Chancellor was accused of painting a rosy picture of how quickly Britain would return to growth. He told the Commons the country would be out of recession by the end of this year.

A report by the International Monetary Fund (IMF) suggested the British economy would continue to decline next year.

As a result it is feared the final borrowing figures could be even higher, since Mr Darling based his plans on an assumption that the UK economy will recover much more sharply than other economists believe.

After Mr Darling's 50 minute speech to the Commons failed to rouse the Labour benches, David Cameron, the Conservative leader, said Mr Brown was leading a "government of the living dead".

George Osborne, the shadow chancellor, said: "Labour is relying on optimistic growth forecasts that have been contradicted by the IMF, and their tax rises fall on the many, not just the few.

"Britain is being overtaxed to pay for Gordon Brown's incompetent overspending."

The Confederation of British Industry, the country's leading business group, also attacked the Budget for failing to grasp how Britain was going to recover from the recession. Richard Lambert, the CBI director general, said: "The key question for this Budget was whether it set out a credible and rigorous path for restoring the public finances to health. The CBI's preliminary judgement must be that it does not."

He said the Treasury had missed an opportunity to look at curbing public sector pay and pensions.

The move to a 50 per cent top rate of tax - which also effects income from share dividends - marks a departure from the era of New Labour in which Tony Blair and Mr Brown sought to woo Middle Britain by keeping the top rate of tax low. The 40 per cent rate was a staple of consecutive Labour manifestos.

Yvette Cooper, the Chief Secretary to the Treasury, tried to defend the move. She said it was the right response to "exceptional circumstances".

Asked whether the hike represented a breach of the 2005 General Election commitment not to raise the "basic or top rates of income tax in the next parliament", she said: "Well, it is. We never expected that we would have this kind of global financial crisis on a scale not seen for almost a century.

"In those circumstances, what we need to do is to make sure we are being fair."

Mr Darling hopes that the measure will raise £7 billion a year in five or six years time. But financial experts questioned whether the hikes would bring in the revenue predicted by the Treasury.

Robert Chote, director of the independent Institute for Fiscal Studies, said that the tax hike may actually lose the Exchequer money.

He said: "If you look at what happened when higher rates were last changed in the 1980s, that might lead you to suggest that such a move might actually lose you revenue, rather than gain it, as people actually declare less income for tax."

Sean Drury, of accountants PricewaterhouseCoopers, warned that the wealthy might decide to leave the country. He said that from next Spring the UK would rank 18th among the G20 economies in terms of income tax and social security rates for senior executives.

He added: "Countries like Switzerland will look increasingly attractive to some of the people in the key industries needed to lead the UK out of the recession.

Mr Darling had told MPs that he wanted the City of London to retain its status as a centre of financial services, but Stuart Fraser, policy chairman of the City of London Corporation, said the new higher rate could put the Square Mile at a disadvantage compared with financial centres overseas.

He said: "The new top rate of income tax at 50 per cent may damage the City's competitiveness - we operate in a global market for talent, and that talent is expensive."

David Cameron will now come under pressure from his own MPs to oppose the new 50p rate. The Tory leader attacked the move in the Commons, but he will not agree to reverse the measure if he wins the election.

Mr Osborne wants to make sure the next lection is fought on tax rises for the many - the proposed national insurance rise that his scheduled for after the election - and not tax rises for the few.

Source: The Telegraph

Alistair Darling poised to slash spending and raise taxes in Budget

Alistair Darling is considering fierce public spending curbs and deferred tax rises to convince the markets that Britain will emerge eventually from its massive debt.

The Chancellor is likely to predict in next Wednesday’s Budget that the economic recovery will start around the turn of the year. But he will have to decide within days how far to go in highlighting deferred spending economies and tax rises after 2011 and how much to save up for the Pre-Budget Report in November.

The Government’s borrowing isexpected to balloon to almost £175 billion a year in each of the next two years as the recession triggers a surge in public spending and a slump in tax payments.

The scale of the Treasury’s slide into the red, expected to be confirmed by the Budget, is set to push the deficit to as much as 12 per cent of GDP — a level not seen since the Second World War and far above an 8 per cent peak reached after the 1990s recession under the Conservatives

The latest Treasury survey of City economists’ forecasts, released yesterday, shows an average prediction that public borrowing will hit £160 billion in 2009-10 (compared with the Chancellor’s £118 billion projection last autumn) and rise to £167 billion in 2010-11.

Mr Darling is expected also to focus on environmental measures as part of the recovery. Today, as the Cabinet meets in Glasgow, ministers will say that discounts as high as £5,000 could be made available to help buyers of electric cars. Gordon Brown has said that there should be a roadside network of charging points for cars and incentives for carmakers.

Treasury insiders say that while the Chancellor is determined to show that his “direction of travel” is towards balancing the books over several years, he will not want to do anything to jeopardise the recovery. Most economists believe that the public finances cannot be restored to health without big spending cuts, tax rises or both.

One Treasury insider said: “There are two fiscal events each year with the Budget and Pre-Budget Report \ and we can use each to make adjustments. There has to be clawback — we know that. The key judgment is when to announce it.”

The extent of these — on top of those already announced, such as the new top rate of income tax of 45 per cent for people earning more than £150,000 — will be determined in discussions between Mr Darling and Mr Brown.

Most of the focus after the last PBR was on future tax rises. But Mr Darling slashed the growth in spending after 2012 from an already painful 1.8 per cent to 1.2 per cent. He could go even farther to show his seriousness about setting the finances straight once the shocks to the world economic system have calmed. That will mean cuts of billions from planned programmes.

Mr Darling will make a drastic revision of his growth and borrowing forecasts from the PBR, arguing that the downturn has been far worse than experts expected. He will admit that his hopes last November that growth might resume by the middle of this year have been dashed and he is likely to say that the economy will contract overall by about 3 per cent this year, the worst performance since the Second World War.

The City forecasts that the economy will shrink by 3.7 per cent this year and grow by just 0.3 per cent in 2010.

Source: The Times

Economy will be over worst by October, says Alistair Darling

The British economy will be over the worst of the downturn in six months, Alistair Darling will declare in his Budget.

The Chancellor is set to forecast that the economy will halt its fall in the last quarter of the year, which starts in October. He will predict a return to growth at the turn of the year, with a recovery well underway by the time of the next general election.

The outlook will draw political accusations of over-optimism, since some forecasters are much more pessimistic. The National Institute of Economic and Social Research this week suggested that economic growth may not resume until 2012.

However, some independent economists believe the Treasury position is credible: nearly half the City analysts polled this week by Reuters said the UK economy will at least stabilise in the last three months of the year, and some predict growth will resume then.

Despite bleak economic data and rising unemployment, government insiders say there are some reasons for cautious optimism, including last week's Bank of England credit survey suggesting banks are preparing to lend more to families and companies in the months ahead.

Some economists also expect the US economy to pull out of its recession in the second half of the year. President Barack Obama has said he sees "glimmers of hope" for a recovery.

And the Organisation for Economic Co-operation and Development said on Friday that although all major economies are suffering a major contraction, there are some "tentative signs of improvement" in the rate of decline in France and Germany.

The forecast of resumed British growth may be the only optimistic signal in an otherwise gloomy Budget. Mr Darling is set to accept that during a year-long contraction that started last year, the UK economy shrank by more than 3 per cent, the sharpest fall for a generation.

Faced with an ever-growing hole in the public finances, he will also announce long-term tax rises and spending cuts to try to balance his budget over the next six years.

There will be few eye-catching giveaways, although Whitehall discussions are continuing about offering a £2,000 "scrappage fee" to people trading in used cars for new models.

Despite reports that the Treasury has rejected the proposal by Lord Mandelson, the Business Secretary, sources said over the weekend that the plan remains "on the table".

In his last forecast at the pre-Budget report in November, Mr Darling predicted that growth would resume from the third quarter, which begins in July.

Although the Chancellor has since admitted that he understated the severity of the recession and will have to increase his estimate of the depth of the slump, in the Budget he will only move his prediction of renewed growth back by three months.

The Treasury is signalling it believes the British downturn could be 'V'-shaped, a steep fall followed by a relatively quick rebound. Stephen Timms, a Treasury minister this week signalled the Government expects growth to resume this year, adding: "The question is when in the second half of the year."

Signs of economic recovery around the New Year are vital to Gordon Brown's fragile hopes of winning a general election next spring.

Labour strategists also believe the party must appear optimistic about the future, accusing the Tories of "talking Britain down".

However, even if headline figures like gross domestic product are improving by then, unemployment - which lags behind economic growth - may still be rising as the Prime Minister goes to the polls.

Source: The Telegraph

Brown Pressed by Unions, Lawmakers to Increase Spending in U.K.

Unions and lawmakers from the U.K.’s ruling Labour Party pressed Prime Minister Gordon Brown to increase spending in the annual budget, countering a warning from the central bank to keep a lid on the deficit.

The Trades Union Congress representing 6.5 million workers called on Brown today to set aside 25 billion pounds ($37 billion) to build and insulate homes, support clean energy projects and renew Britain’s rail network. Five Labour lawmakers led by former Cabinet minister Peter Hain asked for more government measures to stimulate the economy.

“The U.K. fiscal stimulus has not been that generous,” TUC General Secretary Brendan Barber said in a statement in London today. “There is still scope for a carefully targeted second round that can promote a quicker recovery.”

The demands are at odds with the advice of Bank of England Governor Mervyn King and the Institute for Fiscal Studies. Both have warned that the government already is piling up too much debt. Their advice suggests Brown may have to lift taxes or curb spending around the time of the next election, due by mid-2010.

Chancellor of the Exchequer Alistair Darling presents his budget statement to Parliament on April 22 and will have to balance concerns about the deficit against demands from pressure groups for more support for the economy.

Mortgage Rescue

Another lobby group, the Home Builders Federation, said Brown should move more quickly to prop up the market for mortgage-backed securities, which financed a third of home loans before credit markets faltered in 2007.

The Treasury is negotiating with banks about loan guarantees to prop up the market, which hasn’t created any new securities in the U.K. since August 2008.

The lobby group also called for an extension of a tax holiday on the purchase of some homes and for the Treasury to funnel more money into building houses.

Labour lawmakers including Meg Munn, Sally Keeble and Mark Todd joined Hain in calling for more government support for the economy in articles published in Progress magazine.

“More not less public investment is needed to create jobs,” Hain wrote. “Taxes on lower incomes must not rise and should be lowered if possible.”

Darling already has said the recession in Britain is worse than he had forecast in November, suggesting there isn’t much money available.

The Treasury’s deficit this fiscal year will reach 150 billion pounds, or 10.4 percent of gross domestic product, the Institute for Fiscal Studies said yesterday. Earlier this month, the government failed to attract enough investors for an auction of its 40-year bonds. King has said Darling should be “cautious” before spending more.

“In the longer term, we have to have a sustainable position,” Darling said March 26 when questioned about the budget. “A substantial amount of money has gone into the economy” already.

Source: Bloomberg

How will Gordon Brown pay back the national debt?

As many economists start to turn vaguely positive on the UK economy we may be on the verge of a recovery in business levels. While this news has, and will continue to be, well received by business leaders and the stock market, there are still severe concerns as to how Gordon Brown will pay back the national debt which is literally crippling the UK budget.

While many are awaiting the announcement of this month's budget, it is the short to medium term situation which is beginning to cause most concern amongst experts. Nobody is quite sure how much UK debt has been accumulated over the last 12 months as Gordon Brown has been literally throwing money at the system and UK banking companies. Despite repeated requests by opposition parties and business leaders, the Treasury has been unable to confirm the exact position and balance sheet of the UK.

Whatever the exact figure may be there is no doubt that UK taxes will increase in the short to medium term with some analysts suggesting this could cause a significant drag on the recovery of the UK economy. Until we know the exact balance sheet of the UK it is impossible to suggest any course of action and when consumers and businesses may be hit by increased tax bombshells.

Chairman`s Anger: Is Dunfermline Building Society A Victim Of The Treasury?

A building society chairman has complained bitterly of his institution being needlessly "sacrificed" by the Treasury.

Jim Faulds, chairman of the Dunfermline Building Society, said the institution's imminent takeover was both unnecessary and a "scandal".

Mr Faulds insisted the Dunfermline had a viable long-term future, claimed its problems were not as bad as portrayed, and accused Chancellor Alistair Darling of being badly briefed.

UK Economy to Contract in 2010

BRITAIN is the only major country whose economy will SHRINK next year, a damning forecast said last night.

The International Monetary Fund predicts a 0.2 reduction. But it expects the US economy to grow by the same amount, the Eurozone by 0.1 per cent, Asia by 5.8 per cent and Latin America by 2.3 per cent.

The forecast is a blow to PM Gordon Brown. But Ministers will say it shows the UK recovering from this year’s estimated 3.8 per cent shrinkage.

Shadow chancellor George Osborne said: “This forecast is further evidence that Gordon Brown’s economic model is fundamentally broken and his policies on the recession aren’t working.”

Source: GEORGE PASCOE-WATSON