UK News ALEX BRUMMER: New tax levy takes too much out of economy too soon

02:30  11 september  2021
02:30  11 september  2021 Source:   dailymail.co.uk

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ALEX BRUMMER : While it may be too soon for David Cameron to declare happy days are here again (as he attempted to on Wednesday), the British economy looks as if it’s emerging from its long nightmare. No, the greatest boost to the economy came from both manufacturing and services, with the construction industry being the only major laggard. Wise heads know that taking too much notice of any one piece of economic data is always a mistake.

With most of the shops closed it is not entirely surprising. However, with uncertainty around jobs as furlough winds down, resuscitating the spending habit will be a formidable task. A housing recovery would be one path to growth. The most direct way of encouraging consumption would be a temporary cut in VAT. This device was used by former Chancellor Alistair Darling during the financial crisis. Another measure might be reform of the apprenticeship levy . The money is being collected but is not spent well in terms of the tech training required to prevent young people becoming a lost generation.

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Britain's much heralded freedom day on July 19 proved anything but. A host of factors – such as the pingdemic, supply chain issues and a slowing in vaccination rollout – meant that output in July fell well below market expectations, with growth of just 0.1 per cent.

That had City economists reaching for their Excel sheets, with Goldman Sachs cutting its third quarter forecast from an upbeat 2.6 per cent to 1.4 per cent.

Britain's Covid bounce looks much less springy than hoped. The patchy recovery comes at a tricky moment. Much of the hourglass Covid-19 assistance is ending.

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By Alex Brummer for the Daily Mail. The scale of the petrol price reductions is even more remarkable when one considers the proportion the oil companies actually get to keep, with up to 75 per cent of the charge at the pumps going directly to the Exchequer in the shape of fuel duties and VAT. But the falls pose a far bigger question: if those who sell us petrol have proved so fleet of foot and consumer-friendly, delivering benefits to more than 35 million motorists, why is it that the nation’s big six energy companies, the airlines and major manufacturers, such as consumer goods giants, are not

ALEX BRUMMER : As Covid spending retreats, calls for new taxes beyond those in the Budget should be resisted in order to keep boosters burning. That does not suggest that investors in Britain are panicking or that the Bank of England will need to raise borrowing costs any time soon . Poll dancing. The Institute for Fiscal Studies is one of Britain’s most impressive economic think-tanks providing forensic analysis of the nation’s tax and spending policies.

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The stamp duty tax break, which set the housing market on fire and supported the services and construction sectors, has gone.

Some 1.6m people, still on furlough, are waiting to be called back to full-time work and the £20 per week uplift for needy households on universal credit ends on October 6. The age of pandemic subsidy is coming to an end.

It is important for every citizen that the shadow of social care and the funding needs of the NHS is being addressed.

But in terms of maintaining growth it may be precisely the wrong moment to impose a £12billion tax burden on work.

Business and employees may have until April next year to contemplate the tax shock, but in the Anglo-Saxon economic model, penalising jobs is no solution.

Tories warn the PM over manifesto-busting NI hike for social care

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By Alex Brummer for the Daily Mail. More controversial would be a rise in insurance premium tax , paid on car and home policies, and lowering the threshold at which firms start to pay VAT from the current figure of £85,000 – far higher than most of the EU. Of course, the most crowd-pleasing tax the Chancellor could impose would be on digital behemoths such as Amazon, Google, and Facebook, which earn billions of pounds in Britain but pay virtually no corporation or company taxes of any size.

ALEX BRUMMER : You have to wonder if Federal Reserve, under US Federal Reserve announces that interest rates will remain Understanding of the free market economy and how it works is wafer thin, which is a little bit hairy given the importance of China. It may not be the ideal time for George Osborne to be embarking on a sales mission to China, although there are deals such as the financing for nuclear power at Hinckley Point in Somerset to be tied down.

If work is to be made more attractive and people currently classified as economically inactive are to be brought back into the workforce, they are unlikely to fill in application forms if they know the Government is going to grab a large chunk of wages. Moreover, firms may think twice about hiring people, such as truck drivers, at improved wages if the payroll tax is increased.

Video: Rishi Sunak plays down impact NI rise will have on businesses (Daily Mail)

George W Bush's main economic response to 9/11, precisely two decades ago, was a sharp cut in US payroll taxes. It was an incentive not to sack people, and to take on new staff, as the economy buckled from the terror shock. It was a supply side initiative which provided an output and jobs boost.

The new NHS and social care levy ends any pretence that post-Brexit UK is aiming to be Europe's Singapore. In the pipeline is a swingeing rise in corporation tax from 19 per cent to 25 per cent. This despite the fact that George Osborne's war on company taxation saw revenues rise.

Business leaders say National Insurance hike is 'kick in the teeth'

  Business leaders say National Insurance hike is 'kick in the teeth' The Prime Minister set out plans to raise taxes on workers, employers and some investors to try to fix a health and care crisis, sparking anger within his party by breaking election promises. Mr Johnson revealed a new health and social care levy based on a 1.25 percentage point increase in National Insurance contributions. 'It would be wrong for me to say that we can pay for this recovery without taking the difficult but responsible decisions about how we finance it,' Mr Johnson told parliament.

Much of the North, and industrial Britain backed Leave. Now it is time to listen to them. The Government needs to put new resources behind the Northern Powerhouse. The Tories have been committed to lower and simpler taxation. At the bottom end of the financial scale, the goal should be to unleash entrepreneurship by taking another slice of the population out of the income tax system altogether. It might seem like the wrong thing to suggest given the divided nation exposed by the Brexit vote.

Economists have queried whether the levy could lead to the banks lifting interest rates and fees, disproportionately making it harder for low-income families to buy a home. But Australian Council of Social Services chief Cassandra Goldie told AAP new revenue sources were needed. 'Without this, the burden will fall on people with the lowest incomes through social security payment and service cuts,' she said. 'A well-designed levy on banks that takes account of their privileged position in financial services and the higher profits that result is a fair and sensible way to raise public revenue.'

Moreover, the rise in the taxation of dividends, which accompanied the Government's new package, may look alluring because it appears as if the wealthy will be hardest hit. But it is also a blow to the Reddit generation, share buyers for the first time, as well as other savings.

Because the social care and NHS fix was not a formal financial statement, the underlying arithmetic and impact on the public finances won't be explained until next month's budget. What we do know is that faster-than-expected growth since the March budget and restrained department spending has already delivered a borrowing undershoot of £25billion.

The ability of a faster growing economy to deliver bigger tax revenues – without introducing new charges – should not be underestimated. A further concern, pointed out by Institute for Fiscal Studies, is that 'the creation of an entirely new tax will mean yet more quite unnecessary complexity'. It is also an open goal for a future Chancellor to raise more revenues in the name of the NHS if required.

The distributional aspects of the 1.25 per cent levy have been widely challenged on the Left.

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Yet a Treasury analysis shows that lowest-income households will be the largest beneficiaries of the package, and the 20 per cent of highest-income households will contribute 40 times more than lower income cohorts.

Nevertheless, whichever way it is looked at, the new levy will damage job creation and hurt enterprise, entrepreneurship and savings. It takes too much out of the economy too soon.

Space odyssey

There were moments of great honesty from Welsh-born Silicon Valley guru Michael Moritz at a London event hosted by buy now, pay later specialist Klarna (which he chairs).

The Sequoia investor, who backed Google and Paypal among others, admitted he had allowed Elon Musk's Tesla and Netflix to slip through his fingers. He couldn't quite see why anyone would bother with Netflix when they could pop out to Blockbuster.

As for Musk's other venture Space X. . . that's a whole different ball of wax.

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