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  Select Month May 2008 April 2008 December 2007 November 2005 October 2005 September 2005 August 2005 March 2005 January 2005 December 2004 March 2004 November 2003 October 2003 June 2002 May 2002 February 2002 December 2001 May 2001

Chancellor Alistair Darling today announced that personal tax allowances would be increased by £600, to £6,035 for under 65s, adding a flourish to the u-turn centered on the abolition of the 10p tax rate.

The headline at BBC News Basic rate taxpayers to get £120 misses a point. When the 10p tax rate existed that would have been £60 tax savings. The £120 savings are based on the 20% tax rate no longer being applied. Those on low incomes are still getting mugged, just now they get to wear a nice little hat on their heads as they get coshed. A £600 hat to be precise.

I’d like to think someone read More 180s than the World Darts Championship, though if they had it would have been the full £1,160 increase in the personal allowance and not the £600 increase, which is delayed until September, and refunds. Still with the complicated.

One could be suspicious of the timing of the u-turn, that is apparently going to cost taxpayers £2.7bn, given the recent abysmal showing by Labour in the local elections and the impending by-election in Crewe and Nantwich. A point made by Conservative MP and shadow chancellor George Osborne,

“Let no-one be fooled why you are making this statement today - not because you wanted to…. but because this divided, dithering and disintegrating government are panicking in the face of the Crewe and Nantwich by-election”.

Moreover, the £2.7bn will be financed from borrowing. The rationale being that more debt and incurring huge interest bills, to be paid by the taxpayer now and in the future, doesn’t drain money from the economy while it is slowing. Though the whole idea of draining money from the low-waged while an economy is slowing didn’t appear to concern them when they announced they were abolishing the 10p tax rate.

What this “solution” doesn’t seem to include is all the extra hassle and expense for employers dealing with updating all their records. Apparently, costs incurred by those other than the Government aren’t even worth acknowledging.

Then there are all the new tax tables and updated employer packs which will have to be produced and sent out. How much taxpayer’s money is being wasted there?

As for the low-waged, initial reaction is that they are more confused than ever.

The £120 spoken of in the BBC headline will come in the form of an effective £60 rebate in September and then should equate to £10 a month from then on, assuming you earn enough that is. This should be good news for many on low incomes. However, some of the very lowest earners, including those who don’t have families or work enough hours to claim tax credits, will still end up with less money.

Middle income earners, of which there are about 17 million, should gain. The abolition of the 10p rate coincided with the reduction in the basic rate of tax from 22% to 20%. Therefore, most middle-earners did not lose out from the loss of the 10p band but, like everyone else, they will save the £120 tax that the increased personal allowance provides. This equates to £2bn of the £2.7bn cost, the Institute of Fiscal Studies says.

The upshot of all this is that employees and employers will be less confident about the future. Employers will waste time and money trying to put semi-right what Darling et al made wrong. Those on low incomes will find finances a little tighter, in the near-term at least.

As for confidence in the Government’s ability to deal with the more fundamental problems of an economy heading towards contraction whilst house prices are falling, it is likely that it has been irrevocably damaged.

It is said that Tiberius warned his regional commanders against overtaxing the citizenry by telling them, “boni pastoris est tondere pecus non deglubere”. It is of a good shepherd to shear his flock, not to flay them.

For a number of years tax rates have been creeping up. Both direct and indirect taxes being constantly cranked higher. During the good times hardly anyone cared that the Government kept confiscating ever greater swathes of people’s income. Credit was easy, house prices did nothing but go up, the economy, thanks to financial services and an obscenely bloated civil service, appeared to be tootling along fine. But when the outlook is uncertain the public loses its tolerance for being repeatedly mugged.

Stamp duty on house purchases up to 4%. Increase in the small business corporation tax rate, totalling more than 15% staggered over three years. The non-dom tax. National Insurance rates that creep forever upwards. An 80% increase on the lowest rate of Capital Gains Tax. And most recently, the ongoing incompetence that is the abolition of the 10% tax rate.

As with everything political, persecution by tax is initially on those who are seen as more fortunate. Picking on a minority group is fine, just as long as it is on status and not race. They are buying a bigger house than you, we’ll charge them four times the rate of stamp duty you pay. They are saving for their retirement, let’s rape their pension funds of £5bn+ a year. They have a bigger car than you, we’ll tax them more. Just wrap the penal tax rate in “pay their fair share” propaganda and you should be able to get away with it.

Analysis shows that, net of tax credits, the top 0.1% pay more income tax than the bottom 15% combined. They do not earn 150 times the income. If that top 0.1%, which is only 47,000 people, decided to leave there would be a big hole in the finances. The problem is there are big holes already.

The deteriorating economy, combined with profligate social spending and the escalating cost of maintaining bribes to keep key voter demographics on side, mean ever larger amounts of tax have to be drained from the populace. Result, larger groups have to be targeted. Hence the 10% tax band debacle.

The end result, many of the overtaxed are getting out. It is not only the so-called rich who are looking for the exit. Adding to the exodus is a middle-class squeezed on all sides. A tax system that persecutes single people for being single doesn’t help either. Now government proposals to tax companies on foreign profits have added many businesses to the growing list of those thinking of upping sticks.

The future does not look good. The secular trend is one of rising taxes across the board. Those being driven abroad by the Government’s ever more oppressive tax regime are net contributors to the country’s tax take. That means those who remain will find themselves having to pay a growing share of a rising tax bill.

Never mind being flayed, tax paying Britons prepare to be kebabbed.

Base rates were left at 5% as the two-day meeting of the Bank of England’s Monetary Policy Committee (MPC) culminated with a decision to do absolutely nothing.

The outcome was widely expected given the MPC’s wait-and-see mindset would never tolerate back-to-back monthly rate cuts. April’s quarter percentage point cut from 5.25% to 5% was more or less the death knell for a May cut, despite MPC member Danny Blanchflower calling last month for a half percentage point cut.

Next week’s publication of the Inflation Report was where a lot of economists laid the blame for the BoE’s “disciples of dither” failing to act and cut the rate.

Hopes are now that there will be a cut in June. However, the window of opportunity to sneak in rate cuts is closing. Price inflation is expected to pick up later in the year and there are genuine concerns that second-round effects from wage inflation will also become more prominent as we approach 2009. Those are rate-rising factors.

One opinion is that you want to get rates as low as is practical now so that any rate raising that needs to be done brings you back to where you started. As opposed to leaving rates on hold for now and still having to raise them later. Of course, that assumes the Central Bank has not totally discarded its inflation-fighting persona by then.

There are also concerns being aired that quarter-on-quarter GDP growth could hit 0% or even turn negative by year end. Whilst rate cuts take time to permeate into the economy at large, you want to get them out of the way well before the economy actually looks like it is going to contract. Cutting them when real GDP is stagnant, let alone shrinking, would be a little late to avoid the damage done and jobs lost in the interim.

To be fair, cutting rates will have little impact on the underlying problems in the credit and mortgage sectors. Though, given the lack of success of whatever else has been tried thus far, a little is better than none at all.

In the current environment any reduction in the Base Rate, hopefully matched by a reduction in the rates charged between banks, will be of most benefit to those with impeccable credit.

After years where ludicrously low rates were available to anyone, no matter what their credit standing, the easy-lending era has been replaced by something much more paranoid. Under the new regime it is those who have kept their credit files immaculate who will find they have the most to gain from any cuts in rates. For those who managed their credit and avoided the worst excesses of the debtfest of the last few years, their virtuous behaviour will be rewarded. On the other hand, for those who over-indulged, and have the stains on their credit file to show for it, good deals at good rates will continue to remain elusive.

That would seem to sum up the Government following their latest u-turn.

The abolition of the 10% income tax rate, and resultant increase in income tax bills for those on low incomes, is about as ill-conceived as Labour taxation policy can get.

Pressure from the media, irate voters and a veritable flock of back-benchers provides us with this latest policy about-face.

The first part in the solution, some sort of additional payment for those aged 60 to 64, would appear to make things more complicated and add in new layers of taxpayer-paid-for paper shufflers. Payments are expected to be rounded up so the beneficiaries could end up in pocket and not out of it.

The claim is that it is easier to process this demographic first.

The pensioner and soon-to-be-pensioner age group, aka the “grey vote”, is the must-suck-up-to demographic. They are quickly becoming the dominant age group and are the most politically active with it. The politicians priority is to keep them sweet, no matter what it does to the country’s finances. They are the people you need to keep on side if you want to try to hang on to power

Demographic Doom at the Ballot Box outlines Philip Booth’s report, ‘The Young Held to Ransom – a Public Choice Analysis of the UK State Pension System’. The conclusion, shifting resources from the young to the old is a trend that is set to continue into the future. The pyramid scheme that is the State Pension being primarily to blame.

This latest example of creating policy on the fly highlights the Government’s staggering ability to waste resources. Their apparent need to add in layers of complexity whilst creating non-jobs for phalanxes of civil servants. It is as if destroying value seems the only way a central-planning-obsessed lumbering leviathan of a Government can think. Why do something simple when you can complicate the hell out of it.

There is an alternative solution to whatever random collection of ideas are being put forward as a band aid to the current fiasco. This solution has negligible administrative expense, some one-time paperwork by Government and employers will be needed, yet still treats all taxpayers fairly and actually means everyone who was not earning in excess of the previous 10% ceiling, £2,230 in 2007/08, actually pays less tax.

Raise everyone’s tax free allowance by half the old 10% tax band.

Simple.

On 2007/08 figures that would be £1,115. Using what would be the 2008/09 figure of £2,320, the increase in the tax free allowance would be £1,160.

Any low-waged worker out there who earns less than £1,160 above the current tax free allowance ends up paying no tax. Up to £116 better off than last year. Up to £232 better off than with what is currently in place.

Anyone low-waged earning above £1,160 and up to £2,320 of currently taxable income is still better off, on a declining scale. They are better off £2 less for every £10 above £1,160 they earn.

For example. The tax savings for the low-waged, earning just above the current tax free allowance threshold would be:

Anyone earning £2,320 or over breaks even. No more tax than if the 10% rate still existed.

As a strategy it makes sense. Unfortunately, it is something which should have been enacted instead of the combo tax-futz of abolishing the 10% rate whilst simultaneously lowering basic rate of tax from 22% to 20%.

The upping of personal allowances is simple. Everyone can understand it. Implementation is easier. It certainly makes more sense than the comedy of errors which has lead the Government to where it is today.

Instead we get more of the same. The removal of excessive amounts of tax from everyone’s income. With the opportunity to get some of it back if you happen to have the lifestyle that the Government approves of or are of a demographic which needs to be kept on side.

If that is not you then, for now, you are left to twist in the wind whilst you continue to pay your unfair share.

At midday the Bank of England’s Monetary Policy Committee announced it had reduced the Base Rate by a quarter point from 5.75% to 5.50%, just as had been expected.

The more important questions are, “When will the next cut be?” and “Will rate cuts do much good to save the housing market and the wider economy?”

Commenting before the announcement Mark Stephens, of independent economic think tank in:specie™, said, “A 25 basis point cut is in the bag. Actually, they should cut by 50 but they won’t. That would smack of desperation. It was fear of being perceived as panicky that meant they didn’t cut in November and fear of the same will prevent them from acting decisively now”.

And that is the point. Plod-and-pause tends to be the mentality. A rate move here and then wait and see. When action and decisiveness is needed, the response is often procrastination and pontification.

If the goal is to fight inflation, and that is real inflation and not the discredited CPI variety, then rate cuts shouldn’t be happening. However, given what happened in August and September, Central Bankers seem to have given up on projecting the illusion of being inflation fighters. The job is to save a bloated economy, overly indebted and founded on speculation, from imploding. Or at least try to delay the day of reckoning a little longer.

If saving the economy is what is intended, postponing the retribution due for years of profligacy and wanton excess, then action needs to be taken. Unfortunately that action will require more than rate cuts, even if those rate cuts came in a timely fashion.

Governments may pump newly created money into the economy by creating fake jobs or squandering limited resources on pet projects and cash handouts to keep the voters placated. But the real volume of money in the system isn’t money at all it is credit. And that credit is created out of thin air by the banks. At the moment the banks don’t want to lend to each other, let alone the man in the street.

So for now Central Bankers cut rates. In recent days Australia has frozen rates and Canada has cut. Other countries are now looking to cut as the global credit contraction, particularly focussed on Western economies, continues to bite. On December 11th the U.S. FOMC is expected to cut rates by a quarter point.

Lowering rates, means a weaker currency. A weaker currency means higher price inflation as the cost of imported goods increases. Just what you need when the economy is faltering.

“Overindebtedness by both consumers and Governments, the U.S and the U.K being the most blatant examples, means that declining asset values combined with a credit contraction could lead to a deflationary depression”, said Stephen Rose director at Debt Advice Bureau™.

“It is possible that the multi-decade Debt Supercycle is at an end”, added Rose. “If that is the case then cutting rates won’t provide much comfort, even if there is a false dawn as people perceive a few months of respite”.

“If this is a Credit Crunch, all well and good”, continued Rose. “Another year or so, and things will begin to pick up. Credit markets will sort themselves out and confidence will tentatively begin to return”.

“If it is a Credit Revulsion, which it is starting to look like it is, then the impact is going to be a lot worse and last a lot longer than anyone thinks”, Rose concluded.

And that is the point. Credit Revulsions are rare but the effects are long lasting. Think the Great Depression. Think Japan, which has been suffering serial recessions for almost two decades. What happened between 1989 and 1995 in the UK was a mild little credit revulsion, no more than an appetiser. This time we may be presented with the main course.

For now it is difficult to get a clear picture as events continue to unfold. The only thing that appears to be certain is that it is all hands to the pump. If the Government and the Bank of England what to avoid the economy descending into the abyss then they have to do something about it, and that something needs to be more radical and more proactive than what they are doing now. It has certainly got to be more than the occasional, belated cut in the Base Rate.

A growing number of bankrupts are being targeted for Bankruptcy Restrictions Orders (BROs) as Official Receivers pursue those bankrupts who are believed to have acted in bad faith and contributed to their bankruptcy, according to figures released today.

Anyone thinking they can rack up loads of debt and use bankruptcy as an easy way to walk away form their responsibilities needs to think again. “The screw is tightening on those who have been guilty of misconduct”, said Desmond Flynn, Inspector General and Agency Chief Executive of the Insolvency Service.

In the six months to September 2005, 165 people have been made subject to BROs or Bankruptcy Restrictions Undertakings (BRUs) for periods ranging from 2 to 11 years. In addition, the Secretary of State has issued directions to take proceedings against another 313 bankrupts and Official Receivers are working on submitting reports on a further 600.

The most common allegations made in support of applications are:

• Contributing to the bankruptcy by gambling or extravagance;
• Incurring debts with no reasonable prospect of being able to meet the liability incurred;
• Entering into transactions to prefer friends or relatives ahead of other creditors or at a value less than the true value.

BROs and BRUs were introduced on 1st April 2004 in England and Wales, the same time the length of bankruptcy as reduced from up to 3 years to a maximum of 12 months, as a way of dealing with those bankrupts who were considered to be blameworthy, dishonest or culpable in their conduct leading up to bankruptcy.

BROs or BRUs subject bankrupts to bankruptcy restrictions for between 2 and 15 years and, as with bankruptcy, all BROs and BRUs are recorded on the Individual Insolvency Register, which can be accessed online and searched by anyone.

But BROs are only one way to ensure that bankruptcy is not an easy way to avoid paying back one’s debts. Income Payments Orders mean that whilst a bankrupt may be discharged from bankruptcy after one year, they can still be liable to make contributions from their income for three years.

Just because you’ve been discharged doesn’t mean you stop paying. “If bankrupts can pay towards their debts, they will pay”, said Mr. Flynn.

Bankruptcy is not a get-out-of-debt-free card. Bad faith bankrupts you have been warned.

Article copyright © Clientsmart Limited. Reproduced with Permission.

19,687 mortgage repossession orders were issued in England and Wales in the three months ending September, a massive 66% increase on the same quarter last year, according to figures released by the Department for Constitutional Affairs.

The figure is the highest since the third quarter of 1993, back in the dark days of the property recession and is far removed from the low of 9,616 experienced in the first quarter of 2003, just 30 months earlier.

The number of possession orders being issued has been increasing since the early part of 2004 and the trend is expected to continue with the expectation that the 25,000-orders-issued mark could be breached by the end of March 2006.

Don’t Panic Just Yet

Things may be getting worse, but it is not necessarily as dire as the figures initially suggest.

The number of possession orders does not reflect the number of properties that will end up being repossessed. It is more common for lenders and borrowers to come to an agreement over the outstanding debt rather than events end in the property being repossessed. It is also not uncommon for a property to have more than one possession order issued against.

There is no denying that it is an escalating problem. Actual repossessions for the first 6 months of 2005 totalled 4,640, according to figures released by the Council of Mortgage Lenders, up from 3,070 in the preceding six months.

Whilst these figures emphasise that the majority of repossession orders do not translate into actual repossessions, it does highlight the growing number of people with repayment problems. The CML anticipates the total number of repossessions for 2005 will be more than 10,000, still far removed from the 70,000 a year witnessed during the height of the property recession of the early 1990s.

Talk to Your Lender

The difference between the number of possession orders issued and actual repossessions also highlights how important it is to talk your lender as soon as you find you can’t make the mortgage payments.

“If you are having problems making your repayments it is imperative your get in touch with your lender immediately”, says Stephen Rose director of the not-for-profit Debt Advice Bureau™. “Don’t bury your head in the sand in the misguided hope that things will sort themselves out. If the lender doesn’t know what is happening, they are more likely to take you to court”.

“The sooner you talk to your lender, the sooner you can come to an arrangement. One which you can afford and which ensures you don’t have to worry about nasty letters arriving in the post”.

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