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  1. Wealth
December 9, 2009

Pre-Budget Report Live

By Spear's

Live coverage of the Pre-Budget Report as it happens, plus expert analysis in the aftermath.

Live coverage of the Pre-Budget Report as it happens, plus expert analysis in the aftermath.

Corporation tax rise deferred ** 12.47, 12.49 Growth and borrowing forecasts ** 13.03 50% tax on bankers’ bonuses ** 13.16 National Insurance to go up by 0.5p ** 13.37 Comment from Sophie Dworetzsky of Withers ** 14.22 Comment from Tim Gregory of Saffery Champness ** 14.47 Amnesty still open ** 15.09 Bombshell: Withers finds that all FSA-regulated institutions (including hedge funds are family offices) are liable to bonus tax ** 16.09 Read Spear’s comment on Darling’s nasty surprise

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12.17: The weekly ding-dong that is Prime Minister’s Questions is just going on, with Nick Clegg looking like he wants to strap on the boxing gloves. David Cameron was asking mostly about Afghanistan strategy, and then the imminent release of the new MPs’ second homes expenses.

We are awaiting the Pre-Budget Report, delivered by Alistair Darling at 12.30 and featuring (no doubt) banker-bashing measures as well as indications as to whether the government will puruse debt-reduction or maintain spending. (The Budget must be held within three months.)

12.28: We’ve heard that departmental budgets will be cut by 14%, tho’ health has been excluded already. Will a figure be put on it today?

12.31: Brown just defending the tripartite system of regulation. Which worked so well, clearly.

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12.32: And we’re off. Darling says still much uncertainty so task is to promote growth by investing in future tech, i.e. digital, bio- and low carbon technology. Also youth employment and maintain support (which means no sudden withdrawal of stimulus). “Going for growth” is clearly going to be Labour’s election slogan. AD trying to establish clear water between Labour and the Tories.

12.35: US housing recovering, as are global stock markets (not Greece today, tho’). UK economy to start growing by turn of the year thanks to improved exports.

12.36: VAT to return to 17.5% on 1 January, as planned. Deferred tax rises have led to lower levels of insolvencies, and will be extended still, as needed. Corporation tax increase to be deferred to help small businesses.

12.42: Unemployment at 1.6m much lower than expected thanks to stimulus measures. Youth employment measures: all 18-24 year olds to be given work or training after six months. Over-50s to receive specialist support to help them get jobs. Next: pensionable age to be put back to death in 2012, then corpses to be reanimated to increase workforce.

12.45: RPI low which is good for prices but bad for benefits, so state pension not to be frozen but up by 2.45%, which is (given everything else is going down) astonishing. Bingo duty from 25% to 20%. Two fat ladies very happy.

12.47: “Underlying strength of the economy” – yikes, he still believes this? Economy to fall by 4.75% this year – but how much in total? Growth 3.5% in 2011 and 2012, as predicted. Consumer inflation up to 3.5% because of VAT increase, then 1.5% by year end. Stamp duty and income tax revenues “sharply down”.

12.48: Banking stability measures have helped. £50bn set aside in Budget for emergencies won’t be needed – just £10bn now. Darling wants to get all taxpayers’ money back.

12.49: Public sector net borrowing as % of GDP to be halved by 2014 by legislation. TIghtening “too soon, too quickly, too indiscriminately as others have suggested” will be disastrous. Forecast for budget deficit at Budget: £175bn this year, £97bn (2013/14). Borrowing forecast up to £178bn this year, and to go down to £176bn next year – hardly an expectation of improvement, tho’ low increase this year is impressive given turmoil. Budget deficit to 1.9% by end of forecasting period. Net debt to reach 78% by 2014 – “in line with average of other G7 economies” – but what about G20?

12.53: Low-carbon technologies to be supported.

12.54: SMEs have difficulty in getting loans. Banks contributing to £500m capital growth fund – blood money, I presume.

12.57: Greenwash. You don’t care.

Words from Freddy Barker, the head of the Spear’s Research Unit:

“Given a choice between tax increases and spending cuts, Labour have opted for the popular but short sighted option.

“14% cuts across non frontline services are insufficient to save Britain’s financial future. We are the only country in the G20 still in recession and our plans to borrow more over the next two years than every previous government put together do not inspire hope in a V shaped recovery.

“The PBR is too little, too late. Brown’s cutting of ‘unnecessary’ programs is testament to 12 years of poor capital allocation decisions. As Warren Buffett says, any manager who announces cost saving programmes is merely admitting that their previous decisions have not delivered value for money.”

12.58: Transport infrastructure projects to keep public spending going.

13.00: 10,000 low-income-family undergrads will get money for internships to help them gain access to out-of-reach careers.

13.01: 10% corporation tax on income that derives from patents. Good news for green, tech and creative industries.

13.02: Still waiting for the banker-bashing…

13.03: “Tough decisions on tax now.” Collective losses of £80bn by banks this year. “There is no bank that has not benefited from this help.” Rebuild capital base, so no tax on profits.


Bonuses should not be a priority for banks, so if they’re paid, money will be “clawed back”. 50% levy on bonuses above £25,000 to be paid by bank, not employee. Anti-avoidance measures to be put in straight away. Expected to raise £0.5bn which will be used to pay for youth employment measures. Cheers from Parliament.

Just as expected, not a money-raising measure but a warning.

13.05: Inheritance tax threshold: raising allowance not a priority, so individual allowances frozen at £325,000. No income tax changes next year. This is no good for Spear’s readers, but you’re clever enough not to be too worried by this. If the Tories do still go for a rise in this, that will be attractive to some.

13.07: Anti-avoidance and -evasion measures; gibe at Zac Goldsmith qua those with offshore accounts.

13.08: Public spending for 2010 to be maintained until recovering firmly established, but once recovered, cuts must be made. “We take these decisions from a position of strength.” Indeed? So strong that departmental budgets are going to be cut to smithereens?

13.10: No spending review for dept’l budgets, but clear direction emerging: current spending growth can be set lower and will rise by 0.8% between 2011 and 2014, which (if growth and thus inflation return) will be a real-terms decrease. “Some programmes will need to be cut altogether.” £10bn saved in NHS so far. Frontline services to be protected.

13.11: Quangos to go, assets to be sold. £5bn savings from spending programmes. Pension contributions to be capped in the public sector. New public sector salaries over £150,000 and bonuses over £50,000 to be approved by Treasury. Growth in public sector pay to be limited to 1% – strikes ahead?

Armed forces to get more resources: another £2.5bn for Afghanistan.

13.15: International development: overseas aid will rise to 0.7% of national income.

13.16: National Insurance to go up by 0.5p from 2011, which hurts everyone. NHS and schools to get more money for two years from 2011 – Ed Balls got his way, then.

13.17: Free school meals to be extended – ahhh, sweet little giveaway at the end. Just to make us forget NI has gone up again.

13.18: “Choice between ambition driven by fairness and opportunity and austerity driven by dogma.”

13.18: George Osborne steps up. “We got a pre-election report.” No real spending decisions announced – just postponed.

13.21: Darling had to create confidence in forecasts, show Britain was open for business. 4.75% contraction in economy. Total contraction figure for Britain is 5.75%, not annualised one Darling gave.

13.22: £789bn of additional borrowing over the next six years – £23,000 per child born today.

13.36: The leaks ruined all the good parts – I hate PBR spoilers.

13.37: Wise words from Sophie Dworetzsky of Withers:

“I suppose the devil will be in the detail of the anti-avoidance stuff. Subject to what we see later today it may well have some interesting effects.

“The supertax on bankers bonuses is interesting. It seems to mean that if a bank wishes to pay an employee a £100,000 bonus they need to start off with £200,000 of which 50% will be subject to tax at bank level, the employee then gets £100,000 and pays another 50% on that as of next year.  Plus NI will apply. So you end up with £50,000 net, and £150,000 has gone in tax. Seems to mean a 75% tax rate, although the details may clarify this.”

13.39: NI rise to start in 2011, i.e. post-election. Shock!

14.22: Expert reaction from Tim Gregory, partner in the private wealth group at accountants Saffery Champness:

“In what may well be his last Pre-Budget Report, the Chancellor announced a surprisingly large package of measures. Whilst there was some welcome news, there were sadly also some missed opportunities and one or two initiatives that could well back-fire.

”A new one-off tax on bankers’ bonuses over £25,000 of 50%, to be charged to the employer, on top of the individual’s tax liability. Whilst some action in this area was only to be expected, this massive increase in tax seems very likely to lead to people who really are top banking talent to relocate abroad and continue working from a place where their income may not be taxed in the UK at all. Further, the fact that the tax will be levied on the employer means that the banks can only be expected to encourage this activity.

Small companies’ corporation tax rate, which was to increase in 2010/11 to 22%, will remain at this year’s 21%, and this is clearly helpful for a very small number of struggling companies.  However, it clearly does not help any businesses that are currently making short term losses, which are in real need of some help.  Deferring tax rate increases on profits that are currently dwindling will cost the economy little, and is principally a soundbite.

”The Inheritance Tax nil rate band, above which IHT is charged, is to be frozen at £325,000 for next year, instead of the planned increase to £350,000.  This will lead to yet more middle-income people being drawn into the net of this tax that was initially introduced with regard to the very wealthy only.

Anti-avoidance measures to protect £5 billion of tax revenue. This received arguably the biggest reaction from the House, and there is no doubt that people should not be illegally evading their tax responsibilities. However, this amount of tax is around a half of 1% of each of both tax revenues and the UK’s total debt. Solving this problem is clearly necessary, but it is not going to make very much difference.”

14.28: I’m now going to read the full documentation of the PBR to find out what these anti-avoidance measures might be, and while I’m at it, see where most departments are going to have to cut 14% (as Darling signally failed to mention).

14.47: The pre-existing amnesty is maintained (section 5.73 in the full PBR documentation):

“UK taxpayers hiding money and assets offshore in order to evade tax represent a significant drain on the public finances. Following a recent tribunal decision, HMRC is receiving details from over 300 financial institutions in the UK regarding offshore bank accounts. Alongside this, the Government is offering the New Disclosure Opportunity (NDO), giving those with undeclared assets a final chance to come forward to pay tax, interest and a reduced penalty. The notification window for the NDO runs until 4 January 2010, with a final disclosure and full payment required by 12 March 2010.”

And the next sections toughen up the legislation for tax evasion and require certain jurisdictions to notify the government about offshore accounts they hold.

In fact download the whole thing here.

More juicy details to come.

15.00 Via Twitter, @withersllp says: “‘Super-tax’ on bankers bonuses will not only apply to banks supported by the taxpayer but to any institution authorised by the FSA.” Which is not a few.

15.09: Withers elaborates on wide application of bonus tax:

Chris Groves, partner in the wealth planning team at international law firm Withers LLP, comments:  

“As always with the pre-budget report, the devil is in the detail. An unexpected bombshell in the technical notes is that these provisions will not only apply to those banks supported by the taxpayer over the last 18 months but to any institution authorised by the FSA. This is of much wider effect and will include hedge fund and private equity fund managers, investment advisors, brokers and also many family offices who have not been in receipt of taxpayer support. One could say the Chancellor is using a sledgehammer to crack a nut.”

Sophie Dworetzsky, partner at Withers LLP, adds:

“Discretionary bonus awards contractually agreed but not paid also seem to be caught. The super-tax only applies to bonuses declared until 6 April 2010, but deferring bonuses for high earners until after that time will mean that they are subject to the 50% income tax rate announced in this year’s budget.

Samantha Morgan, partner at Withers LLP, concludes:

“While the super-tax is borne by the institutions themselves, it will undoubtedly discourage the payment of bonuses, with an effective rate of tax on funds allocated for bonuses of circa 70% (not accounting for National Insurance Contributions).”

That is huge news: click here to read Spear’s reaction to it.

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