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PBR - What is the real truth?

6th Dec 2005
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It was unfortunate that the BBC interrupted the speech by George Osborne following Gordon Brown's pre-Budget report (were they told to?) as I learnt more about the real state of the UK economy during those few minutes, than in the preceding 35.

The Chancellor of the Exchequer managed to give the impression that the economy of the UK was in very good shape during his speech, when it clearly is not. For instance he failed to mention that his forecast of annual growth had been downgraded from 3.5 per cent to 1.75% or that the estimated Budget deficit had grown to £10 billion. Neither did he admit that planned government borrowing over the next five years would amount to £151 billion.

It is true that the rate of inflation has decreased dramatically during the term of the Labour government, and that there are fewer unemployed people. Affordable housing is clearly necessary for first time buyers. But at what cost? It seems that development gains will be used to fund affordable homes. There is a huge gap between government statements and actual life. The 'man in the street' is interested in transport, the Health Service, law and order, education, the growth of public services and Iraq. In addition there is concern about immigration, pornography, drugs, bureaucracy, political sleaze and political correctness. And the current (and past) increases in council tax amount to yet another 'stealth tax' that will affect all homeowners.

Stem cell research is all very well, but what about the thousands (if not millions) who do not have an NHS dentist, and go abroad for normal dental treatment. And what about those who choose to go as far as India for a necessary operation? More attention to the basics might be more helpful.

These issues will have to be addressed if the current government expects to be re-elected, and it is sad that in his speech Gordon Brown could not resist making 'snide' remarks about the Opposition parties.

One wanted to hear how the government proposed to close the Budget 'gap', and whether the Chancellor would really be brave enough to introduce measures that would address his lack of funds. £26 billion of public investment has to come from somewhere.

Those who were expecting this sort of response were sadly disappointed. Instead we had the usual relatively minor tax measures and attack on so-called anti-avoidance. It was the Labour government who introduced the nil-rate corporation tax band of £10,000 for small companies, and now they have abolished it completely. Good riddance to the NCD rate of tax, but what about the thousands of small businesses that have incorporated in the expectation that company trading was more tax-efficient than an unincorporated business? I was cautious at the time the nil-rate band was introduced, but many accountants will now end up with 'egg on their faces'.

The clampdown on the use of SIPPs to buy personally owned residential property is predictable, together with the measures to make sure that the combination of the IHT gifts with reservation provisions and the pre-owned assets rules deal with badly drafted legislation about the donor of a residential property gifting the family home but still remaining resident. Of course the government are not yet aware that they have opened yet another door of opportunity with the Civil Partnerships Act. All that two single people of the same sex need to do now is to 'get married' and they can leave assets to each other free of IHT. There does not have to be any emotional or sexual ingredient to the 'marriage'.

As far as Tax Credits are concerned HMRC will not now take into account increases in income of up to £25,000 (previously £2,500) Well, this will deal with the chaotic operation of the scheme as regards the future, but gives no hope to the thousands who have already been overpaid, whose plight was highlighted in the Ombudsman's report. What a cynical solution to a problem that the Chancellor has never acknowledged that he was responsible for promulgating. No mention appears to have been made of the Child Support Agency, whose annual administration costs exceed, as far as I am aware, the amount recovered by some £millions.

As for the use of 'unclaimed balances' in banks and building societies to be used to fund youth and community faculties, in my view this is pure theft, and the banks and building societies should be ashamed of co-operating with such a scheme.

The Chancellor makes much of the government and private sectors working together, but I see evidence of more and more government control, which will increase even further in the future. After all, it is surely better to work for the public sector and retire with an indexed-linked pension at 60 already. 10 years down the road, one wonders what percentage of the UK population will be working in the public sector, and how government interference in personal life will have increased further.

Attack is the best form of defence, and that is the attitude that the Chancellor took in his speech. However, it did not fool everyone, let alone the writer. Nor Opposition MPs, who appeared to be ready to riot at several points during the speech.

John Newth


Replies (11)

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By bobdoney
10th Dec 2005 13:45

Theft! Maybe not.
"As for the use of 'unclaimed balances’ in banks and building societies to be used to fund youth and community faculties, in my view this is pure theft, and the banks and building societies should be ashamed of co-operating with such a scheme."

The British Bankers' Association have made it clear that account holders or their legatees can claim balances on dormant accounts AT ANY TIME:

"The BBA would underline that monies deposited in a UK bank account will remain the property of the account holder or their legal heirs without time limit. This is a fundamental element of deposit-taking and will remain the case. That position is not changed by today's statement."

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By John Savage
06th Dec 2005 11:11

Well said John
I sometimes believe (which is what I suppose Brown wants me to believe) that I am the only person in this country who questions the mess this Chancellor has and is creating. Watching his inane and false grin on Breakfast Television this morning left me with the creepy feeling that if you tell the great unwashed something many times over they will eventually believe it, no matter what the evidence to the contrary is.

The fact is that, far from economic stability we keep hearing about, businesses (the economic engine of our society after all), are struggling with the weight of petty and unnecessary regulations. We do not have the stable fiscal regulations we are told we have, we have a tax system being continually changed and tinkered with. We have a rate of inflation far higher than 2% (I have no idea how Brown calculate this, expect he is selective with what he bases his calculations on, in a similar fashion to the selective way his "Golden Rule" is based on). One only has to look at the increases in Council tax, petrol, water, electricity etc etc (my own water cost rose 19% three months ago!!) to question his 2%. We have a huge and unaffordable public sector, which, in itself, will cause a long term problem for a whole generation. Even if it were massively scaled down tomorrow, we will still have the ongoing effect of their very generous and completely unaffordable pension committments.

Nero fiddled while Rome burned, and so, it seems, does Brown.

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By colinhigginson
06th Dec 2005 13:28

The trouble is.....
....that what the man on the street is bothered about is whether they have a job and then how much money is in their pockets.

Most of the economic problems currently stem from the Iraq war - not GB's fault.

Unemployment is low, interest rates low and it is over 10 years since interest rates were high.

This is what bothers the man on the street and therefore, for all the current failings, GB will go down in history as one of the most successful chancellors ever.

I am no fan of New Labour but GB is the main reason that Tony has kept his job, without the economis seccess (relatively speaking) New Labour would never have won the last election.

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By geoffemtacs
06th Dec 2005 13:29

Spinning - Surely not?
Methinks neither of the two Johns are exactly approaching the PBR from a militant socialist viewpoint somehow. But then neither was Gordon Brown.

The last eight years has seen Gordon Brown do a lot of good things (IMHO), but he's also developed a habit of claiming the credit for good stuff that has happened as a result of circumstances entirely outside of his control. Some of the stability/growth/low inflation (it's 2% on an independently audited basket by the way) has come about for reasons that have nothing to do with him. But he wasn't slow in trying to take the credit.

Now that things have gone awry, partially for reasons outside his control, he's ever so keen to point the finger of blame at this fact. Nor does he happily fess up to any share of the blame. If there was competition for politician least likely to say "oops, got that wrong", Gordon Brown would certainly make the podium.

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By gpyyow
06th Dec 2005 14:11

Agree with John on comments, but have managed to save £000 for s
For those of us that recommended incorporation - it was (at least for me) with the warning that when GB realised what he was giving away, he may well do a u-turn. As it was, a lot of small businesses did enjoy huge tax savings for the last few years. Any savings is always accompanied by glee & gratitude, so I don't think we have any 'egg on our faces'

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By John Savage
06th Dec 2005 16:25

Selective data
Colin, clearly then the figure is based upon conveniently selective data. You can bet your life that if this selective data were showing figures which worked against Brown's desired figures, he would soon find another way of measuring it which would work in his favour.

It is now high time that we had less of this political spin, and more soul searching and truth in this country. To think this chap may be running this country soon! I shudder at the thought!!

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By colinhigginson
06th Dec 2005 15:59

2% inflation
The reason that inflation feels higher is that food, petrol and other items regularly purchased have gone up by more than 2%.

On the other hand electrical goods are going down in price, but these items are purchased about every five years so you don't notice the drop as much.

This has always been the case.

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By listerramjet
06th Dec 2005 15:28

hi geoff
inflation may be 2% in the "independently audited basket", but it is not 2% in my basket, and nor I suspect is it 2% in lots of other baskets, and that is before the impact of the likely council tax revaluations. The old adage "lies, damm lies and statistics" still applies, and don't forget the fourth item (government statistics). Who was it who claimed to be economical with the truth? This sounds more and more like government policy!

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By colinhigginson
06th Dec 2005 16:48

Yes, it is conveniently selected data, but selected by an independent body (independent to the non cynical anyway!).

I was merely making the point that as a perception the things you buy most are those by which the average person measures inflation.

As for spin, we have followed the Americans here. We now have so many professional marketing people advising the politicians that spin will no longer go away.

I have always believed that politicians should be monitored by the Advertising Standards Authority. I am sure that would create extra jobs aswell as the workload would be endless!

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By carnmores
06th Dec 2005 17:04

which brings us to the office of national statistics.

think of a number
double it
take away 5

and the answer is whatever you want it to be

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By Anonymous
06th Dec 2005 20:18

That is what I call creative accounting by cultivating and selective cherry picking figures to impress others and to many normal and ordinary people who knows not alot will believe GB & TB 's reign. History repeats itself and this New Labour will get a bloody nose come election time or maybe ealier especially when txes starts to climb to fund their extravagances eg freebie holidays, unaccountable expenses and massive pay rises and best of all a tax payer funded pension. It is us who we suffer and not them. Could New Labour be comparable to Robert Maxwell?

I wonder? Hmmmmmmmmmmmmm

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