UK Budget June 2010 ruminations, thoughts and rants

Gideon’s just announced his budget, and I’ve reflected upon it. This one was dreaded by lots of people, and having digested it, I am surprised. Although I am a higher tax payer, I can avoid that part of it quite easily, by continuing to save AVCs to my pension, such that I get a tax-free lump sum from that. Having paid off my mortgage and living simply, I don’t need anywhere near half my salary, but I do need early retirement. Match made in heaven. So while Gideon thinks I am on the right hand side of this chart,

June 2010 budget impact estimate

What George Osborne, a.k.a. Gideon, thinks he'll get out of us

I can swing myself to slot 4-5 without breaking a sweat, and indeed without changing anything. So thanks, buddy, for the extra £1k personal allowance, much appreciated!

Note that the higher tax threshold is being brought down by £1500 when the personal allowance rises next year, so people who are currently just below it need to think about how to use salary sacrifice or other wheezes from April if they don’t want to suck it up. I’ve never liked working nearly half for the Government, I think that’s downright rude, and have used all the HMRC approved scams to dodge that. I’m writing this on a laptop purchased under the now deceased Home Computing Initiative, taken extra holiday paid with salary sacrifice, and bought employee shares tax-free.

Of course, to take advantage of these you have to live below your means… If you can’t do that on an income that is in the top 10% of UK incomes and there isn’t an unusual essential cost in your life then you really ought to take a long hard look at your personal finances. Don’t be suckered by the hype in the Torygraph and the right-wing press – under no reasonable definition of the term can higher-rate taxpayers be defined as middle class by income.

One subtle stiffing that I may take from the budget is outlined in this document, is that the government is well aware of my sort, those at the end of their careers. We tend to have a large disposable income due to paid off mortgages, and often empty nests. We have a healthy interest in getting the taxman’s sweaty mitts off it, pumping money into our pensions with the hope of getting 25% of our total pension pot out tax-free in a few years, which obviously beats 42% tax & NI. The headline is that there would be a lowered annual limit for pension contributions of 30-45k which could be an issue for me at the lower end.

Simple living means I won’t be hit too hard by the 2.5% VAT hike. I won’t be buying items of male jewellery like an iPad, though I will get hit on fuel, insurance tax and the like. I will ask Quicken to tell me how much I spent on stuff last year, and take 2.5% to see if it is more than £6800, which would be the breakeven point for the tax break. I don’t think it was that much last year. Benefit cuts? I don’t get no stinkin’ benefits, so no worries on that score. Half of nowt is still nothing!

However, seeing how little this affects me makes me absolutely furious. Not with Gideon, but with Gordon Brown! Why? Because of this:

Public spending relative to income

Public spending relative to income

Observe the fact that we were running a loss ever since 2002, even while  the economy was steaming ahead in the years running up to 2007. What’s was he on? Just as I am saving now, when I am in the peak of my earning power, for leaner times in future when I will be earning less, so should a Government be putting money aside in booms, so that it has some to counter recessions with. At least it shouldn’t be ramping up the national debt!

Not only that, let’s hear which are the constituencies of the disadvantaged. Oh dear, child tax credits dropped for households > 40k?  FFS, why was I subsidising my colleagues’ children?

Housing benefit for people with a four bedroomed house? I’ve never lived in a four bedroomed house, why am I paying tax so others can? (that’s 1.102 of this)

and restricting Housing Benefit for working age claimants in the social rented sector who are occupying a larger property than their household size warrants.

Now I know that it is in the ConDem’s interest to stitch Labour’s record up as much as possible, so not all may be as it seems. And Gideon’s instincts in the teeth of the credit crunch scare me. Here is not a guy who can hold his head in a crisis, like Alistair Darling was.

If Gideon were the pilot of an airliner that loses all four engines in a bird strike, there’s no Chesley Sullenberger calm in the face of adversity. Osborne’s first instinct was to shove the stick forward and enter a nosedive. But now he has the benefit of a little bit of time to assimilate things, and it appears he has the cojones to carry it through.

So if these moves really can make as much saving as he claims, then Britain was carrying an awful lot of passengers.

One area where I feel Osborne failed dismally is in not tackling or even acknowledging the spectre of youth unemployment. According to the Daily Mail, 1 in 10 18 year olds are neither in work nor in employment. The problem, fundamentally, is that there are too many people in the world, and too many of those are prepared to work for less than the UK minimum wage. This means work that can be relocated will be – to outside the UK. This unfortunately also includes a lot of white collar knowledge work too, which is often eminently relocatable using the Internet.

Colin Wilson, The Outsider

Colin Wilson, The Outsider

I grew up in a world were many things were made in the UK – things like TVs and cars used to be made here. They were unreliable as hell, some of this was the technology of the time, some of it was due to poor industrial practices from management and unions alike. But there was unskilled work. Read something like Colin Wilson’s The Outsider which is set in the 1950s and his description of the ease at which jobs could be got and turned over sounds amazing to me and would be positively alien to an 18-year old today. Many of these “NEETS” aren’t unemployed because they are feckless, they are unemployed because capitalism has failed to create useful roles for them in society in a globalised economy.

Somewhere we need to make a call – do we concentrate our resources on the people with greatest potential, or do we seek equality that we can’t afford. Tony Blair’s idea of sending 50% of 18 year olds to university sounded great, until we realise that to do so means we have to cripple them with debt at the worst point, right at the outset of their careers.

We need to find an answer to this, I don’t know if it is in Osborne’s power, but we need to have started yesterday, because unemployment early in one’s career hampers those early stages where much of the direction and confidence is gained. Conversely, the blight of youth unemployment leads to stories like this, as people with delicate and growing self-images at the beginning of their adult careers get shattered by the tragedy of rejections because of too many people chasing too few places.

I don’t know the answers, but this will be a shocking waste of human potential and a source of misery for more than the next five years if it is ignored.

[...] Ruminations on the UK budget – Simple in Suffolk [...]

26 Jun 2010, 1:48pm
by Tim Wright


Hi,

Just came across your blog and I want to comment on this thought.
“Many of these “NEETS” aren’t unemployed because they are feckless, they are unemployed because capitalism has failed to create useful roles for them in society in a globalised economy.”

Capitalism does not raise children, the Govt doesn’t raise children, its families that raise children. If there were an detailed breakdown of who these NEETS are, they would come from single parent families. The surest indicator of low achievement in children is to be found in the makeup of the family. When families breakup, children pay the highest price. Its simple, when families fall apart, so does society.

Tim

@Tim You’re quite right, can’t disagree with what you say. Perhaps what I meant was that we, the people of the UK have adopted capitalism as what we consider the most effective way of organising our financial affairs.

That organisation of our financial affairs appears to be squeezing out opportunities for the less able over time. They could get labouring jobs in Colin Wilson’s 1950s. When I started work in the 1980s, skilled manual jobs were being squeezed out of the economy.

Now I see junior to middle ranking office jobs being squeezed of of the economy as these functions are being offshored. This worries me because Britain is soon becoming a place where people of average intelligence/skills can’t get a job, and by definition, most people fall into that category.

I was going to challenge your assertion that NEETS were necessarily low achievers from broken homes as I was one when I left one of the Russell Group universities in 1981, in the teeth of Margaret Thatcher’s first recession. I was unemployed for 6 months then, and my parents wer and still are together :) However, according to this definition I wasn’t a NEET.

I do feel for the graduate youth unemployed. These poor sods start out their careers heavily in debt, having bought into the lie that a degree is a ticket to a middle-class job. Not only no job but also a millstone round their necks to boot!

19 Jan 2011, 3:22pm
by John Laity


What a great blog!

A quick note on Salary Sacrifice though.

As a Salary Sacrifice reduces payroll budgets, saves employer NI and public sector pension contributions, it could be less of a HMRC “dodge” than you suggest…

I have been lobbying “feckless” (love that term) Civil Servants in BIS, DWP, Cabinet Office and Treasury for some time now on the virtues of Salary Sacrifice as a tool to create taxable wealth.

1. Salary Sacrifice Encourages Banks to Lend to Small Business

Salary Sacrifice programmes utilise ASSET FINANCE arrangements. Employers borrow money from banks to acquire the assets they loan to employees.

As the Bank repayments are deducted from existing payroll budgets and then secured against tangible company assets, the transaction is low risk to the lender.

In maintaining the Asset Finance relationship, the small business demonstrates its ability to meet the lendors terms and thus its overall credit score is improved.

Result: Banks lend to small business

2. Economic Stimulus

For employees struggling to meet increased taxation pressures and reduced household income, salary sacrifice provides a means to spread the cost of ownership. With the employer acting as a trusted lendor, the employee is not dependant on credit or
loans and is thus more likely to make a purchase.

This provides new revenues and employment opportunities for manufacturers, service providers and retailers.

Result = Increased taxation revenues

The main issue in promoting Salary Sacrifice is that Treasury officials can only count once…

…What I mean by this is they are happy to pay a public sector worker and then deduct tax (If you think about it would be cheaper not to bother). The thought they might not collect a portion of tax is alien to them. (You mean we might not collect?)

The issue is they refuse to account for the increases in corporation tax and VAT from the SALE of a product delivered under Salary Sacrifice. Nor will they account for the Job opportunities and residual tax created in the private sector.

Here in lies your issue with Mr Osbourne.

He does not run the figures or prepare Treasury accounts…In fact, he uses the exact same team of officials who ran the figures for Mr Brown.

The TV programme “Yes Minister” is funny because it is so damn accurate as to what really goes on!

Lastly a quick word on NEETS.

We lag so far behind China and India in terms of population growth and educational achievement that we will never solve the issue of youth unemployment…Each country has more honours Graduates than we have Young People…In the Global economic climate (Something Mr Brown liked to talk about) it is not often pointed out that if you shipped ALL the jobs of the USA and UK to China, you would still have a labour surplus…

…Want to solve the NEETS problem?…Teach them Cantonese at School…More Chinese people speak English than their are English people in the UK…Scary isn’t it…

 

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>