After a Happy New Year celebration 2011 starts on a note not quite as happy. The VAT rise from 17.5% to 20% is here.
Business leaders are warning of adverse impact to the retail sector and opposition to the rise are expressing concerns that the poorest will be the worst affected.
The government has specified the necessity to reduce the National budget deficit as the reason for the rise and that the rise, in Chancellor George Osborne's opinion, was a more "progressive" move than hiking other taxes.
Some essential items such as children's clothing and food remain unaffected by VAT.
While George Osborne, the Chancellor of the Exchequer, failed to mention a green stealth tax in has comprehensive spending review speech, the details are hidden in the official publication. Business leaders have already calculated that around £1 billion a year in green stealth taxes will be raised by the authorities adding around 11% to the average energy bills of British companies. Much of the extra funding will be raised by the carbon reduction commitment scheme which was initially set up to reward companies who were more efficient than their counterparts. However, this has all changed!
Provisional figures seem to indicate that middle-class families in the UK will be around £10,000 worse off over the next four years as a result of government changes, benefit reductions and tax increases. Many will be surprised to learn that it is the middle-class families in the UK who appear to be taking the brunt of the budget cuts, the very people who put the coalition government into power. Is this political suicide or does the coalition government have no choice?
As expected the coalition government has today confirmed that the NHS budget will rise by more than inflation over the next four years moving from £104 billion this year to £114 billion at the end of the four-year austerity programme. The authorities also confirmed a raft of benefits for pensioners would be maintained including free eye tests, free prescription charges, free bus passes, free TV licences for the over 75s and winter fuel payments as set out by the previous Labour government.
In line with expectations George Osborne, the Chancellor of the Exchequer, today announced £83 billion in public-sector spending cuts which will come into play over the next four years. He also confirmed that around 500,000 jobs in the public sector would be at risk although the vast majority of these, spread over four years, would likely occur due to natural wastage whereby those leaving posts are not replaced. But is this enough?
There is no doubt that the welfare state is at the centre of cost-cutting exercises by the coalition government with a previous estimate of £11 billion of savings by 2014/15 having been increased by £7 billion with a further £3 billion of "waste" also identified. This is a major reversal of recent times which have seen the welfare state, predominantly benefit payments, mushroom out of control and take over the lives of many people around the UK.
George Osborne has today set out the UK government's public-sector budget for the next four years which will bring in multibillion pound savings. However, surprisingly, the average budget reduction across the government departments is around 19% which is slightly lower than the figure of 20% which the Labour Party had apparently pencilled in earlier this year. So where does this leave opposition parties?
On the day when the UK government is set to announce up to £80 billion of cost cuts over the next four years it was revealed that public sector net borrowing rose to £15.6 billion in September against £14.8 billion in the same period a year ago. Analysts had expected around £14.2 billion of borrowings so the figure is significantly higher and again illustrates the challenges presented to the UK authorities.
Ahead of tomorrow's spending review the UK government has announced a major cutback in defence spending with a number of large projects impacted and the UK Ministry of Defence under serious pressure. While the suggested cutbacks are perhaps not as large as the press had indicated earlier this week and last week there is no doubt that the government sees defence spending in the future as being more focused upon certain areas as opposed to the Ministry of Defence as a whole.
As George Osborne approaches what many believe to be his day of reckoning, i.e. confirmation of the spending review, there is some speculation as to whether he can live up to the hype. Over the last few weeks he has been adamant that the UK budget deficit needs to be addressed sooner rather than later and indeed yesterday received a surprise boost when 35 of the U.K.'s leading companies backed his plans in an open letter to the Daily Telegraph. But is George Osborne brave enough to take his fight to the unions and the masses?
