If you look at a number of aspects of the cost of living in the UK the taxation system, both direct taxes and indirect taxes, do not compare favourably with the vast majority of developed countries around the world. This has been an issue for many years with areas such as tax on petrol and the cost of cars, let alone the cost of gas and electric, among some of the more popular gripes of the UK population.
Yesterday we saw a 30% collapse in the share price of Connaught which operates in the public sector by taking on contracts from local authorities in the UK. The company has been doing very well over the last few years, having grown significantly during this period, but yesterday the management announced that a number of local authority contracts were being reviewed after the significant public sector budget reductions announced by George Osborne.
In what many believe is a long-awaited review of the legal aid system, Kenneth Clarke has announced a review of the service with a potential 25% saving targeted for the short to medium term. This is a system which has attracted fury from the UK public and increased dramatically in size and cost over the last 20 years. The UK government has made clear, from day one, that no one department will be immune from budget cuts although there will obviously be a loose ring fence regarding health spending, police and education.
The cost of borrowing for the UK government has fallen to an eight-month low after many investors welcomed the increased pace of austerity programs introduced to the UK. George Osborne is looking to bring down not only the budget deficit but also UK national debt much quicker than his predecessor had forecast. As a consequence it looks highly likely that the UK government will retain its AAA credit rating and the favourable rates of borrowing which this attracts. So has George Osborne finished the job?
Brian Souter, one of the founders of the Stagecoach empire, has expressed relief that the UK government "only" increased capital gains tax from 18% to 28% but there is speculation this is just the tip of the iceberg. Likening the situation to a condemned man who is given a short-term reprieve he was commenting upon speculation of a rise to 50% which would have had a major impact upon the UK investment market.
Despite opening his budget speech yesterday with a promise to be transparent and up front about all changes it would appear that George Osborne has quietly lowered the threshold at which the 40% income tax rate kicks in. It is now estimated that 700,000 more people in the UK will be dragged into the 40% tax band and see their income tax bills increase for the foreseeable future.
Retailers in the UK have today voiced their anger at an increase in VAT from 17.5% to 20% at a time when most retailers are preparing themselves for the pre-Christmas rush. There are warnings aplenty today that the rise in VAT, although not wholly unexpected, could potentially derail any UK economic revival in the short to medium term by taking money out of the economy. So are things really as bad on the high street as some retailers would have you believe?
As the dust begins to settle on George Osborne's first budget under the new coalition government there are concerns that promises made in the run-up to the general election, specifically by the Liberal Democrat party, appear to have fallen by the wayside. If you cast your mind back just a few weeks many remember the Liberal Democrats advertising poster which suggested that the Conservative party was planning to increase VAT to 20%. At the time the Liberal Democrat party was steadfastly against this move, so what has changed?
The UK government has officially confirmed that the Labour initiative of a broadband tax is now dead in the water. As many had expected, while additional funding will be made available from the government to help assist the creation of broadband networks in more rural areas of the UK the vast majority of investment in the UK broadband sector will be left to the private sector. This is a welcome announcement for UK broadband users although it does place some pressure back up on the private sector.
Despite the fact there had been suggestions that the UK government would increase capital gains tax, across the board, to around 50%, George Osborne has delivered a far less severe change to the capital gains tax regime. For those in the lower and middle income ranges the capital gains tax level will remain at 18% but from midnight tonight those in the higher rate tax band will pay 28%.
