July 7, 2020 - Latest: What has happened to markets this year? by Darius McDermott
7th January 2011
It’s very hard indeed to cut public spending, there are so many vested interests in all corners of the state’s empire and associated quangos and ‘charities’, working hard to prevent any reduction of their funds. It’s what they do best, and I see examples of it daily. All manner of wheezes are being thought up to sustain the cash flow of spending entities and avoid any job losses. Wouldn’t it be nice if they could apply such creativity to constructively reducing spending!
Also, benefits are index linked, though I think to the CPI. Nonetheless, they rise inexorably in both volume and cost. So a big block of spending tends to ramp up.
In my view the Chancellor has failed due to lack of experience, undue timidity and internal flak from the LibDems to get a grip on the public finances. God help us had he not decided to make at least some minor cuts already! I can’t see the deficit reducing at all in the near future and if our AAA rating slips (which would be wholly logical) there will be a step increase in the interest bill when maturities are due, too. Lucky we have quite long dated bonds on average, but that could also change.As for the 80/20 split you mentioned, Shaun, it’s always easier to increase taxes, up to a point. I wait with interest the longer term effect of 20% VAT. I imagine avoidance is becoming a serious issue among the self employed invoice generators and that the population at large is getting rather demotivated by such things as very high fuel taxes.
My local council and county council are working very hard to manage delivery with the lower grant they are receiving from central government mainly through efficiency and staff reduction measures and utilisation of reserves and without cutting services. They are also planning ahead to deal with the potential loss of £15m still at risk in Icelandic banks. Maybe im in a unique area but this seems to me to be a central government problem and a failing of the bloated civil service to confront the problem.
You raise a valid point about high taxation leading to avoidance and immediately thought of the sad story from Lincolnshire when five peoples were killed by an explosion at what was suspected to be an illegal vodka distillery. Alcohol is something with its duties and VAT that is heavily taxed and I guess we will see more of this, illegal distilling I mean and hopefully not more explosions..
There is discussion of the laffer curve for direct taxation but much less for indirect taxation but it too must have a limit.
One thing perhaps worth considering in this issue is the extremely high up-front cost of getting rid of senior public sector staff.In tens of thousands of cases the redundancy bills for those dismissed under older civil service rules run well into 6 figures. We can only hope that in future years the Government finances will actually benefit from the savings these up-front redundancy costs will hopefully generate.
I’m not sure of exactly how redundancy payments and early retirement costs are accounted for by the Government but this could very well have disguised geniune longer terms staff cuts of several £ billion per year.
That would be something I would be interested in understanding
too. Especially when we see examples of senior managers
pensioned off with golden goodbyes only to see them back as consultants. In
some cases the geography changes but the tax payers are still footing the
Hi Mark; well of course they will be paying these 6-figure sums in significantly debased currency, so the cost will not be as high as it might have been!,
Hi Mark and welcome to my blog.
You raise a valid point but the public finance figures I see are too general to have much idea of how much has taken place I am afraid.
No need to worry, the Bank of England will ride to the rescue with a nice dollop of QE. Nominal numbers will become irrelevant as inflation takes off. It will of course mean real cuts to GDP even if it grows nominally as we experience a lost decade.
The younger generation face unaffordable house prices and an increased tax bills to cover debts clocked up by their elders. The highly skilled and entrepreneurial can emigrate somewhere taxes are lower and houses are more affordable. A brain drain would worsen the UK’s ability to collect taxes.
If the Government doesn’t get to grips with this we will be next in the firing line. The IMF (and I suspect the EU will be involved as well) will not be so reticent to sacrifice sacred cows as we can see with Greece/Spain, etc.
The howls of anguish will be deafaning when these cuts do hit, just glad I am putting my assets into physical silver as we speak.
Hopefully the markets will soon turn against this double-speak and delusion by Cameron and Osborne!
I noted one issue in the receipts column being a large corporation tax repayment to companies who had been over-optimistic on profit forecasts. I slao noted the obr emphasising the fact that bank levy receipts and offshore tax receipts are eagerly awaited to cushion the blows..
With next month’s figures being those for a month which has a lot of Corporation tax payments those numbers have got some people worried about what might happen. The Office of Budget Responsibility went so far as to point it out itself listing some issues for July..
“Many medium and large onshore firms will pay the first of four corporation tax instalment payments in July on their 2011 profits; Oil and gas firms will pay the first of three instalment payments on their 2011 profits in July. So far this year, oil prices have averaged close to the $113 a barrel assumed in our March EFO forecast for the whole of 2011. However, oil and gas production has fallen by around 13 per cent in the first five months of 2011 compared to a year earlier”
Reading between the lines it looks like they are worried about current trends too. They forecast a defict reduction of just over £20 billion for the fiscal year of which the first quarter has contributed very little.
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