PBR 2009  - “Instant Response” by Donald Parbrook (OUR GLOSSY PDF WILL APPEAR ON 1OTH DECEMBER IN THE DOCUMENTS SECTION ON THE RIGHT OF THE WEB PAGE)

What a boring and pointless PBR speech!  Darling might just as well have stood up and said “I’ve nothing to give and nothing new to say until after the election, at which time I’ll be on the other side of the room”.

As it was he started speaking before the rabble of noise “post PM questions” had stopped.  His head was down and he spoke quietly, reading his speech with no flair or panache - absolutely no smiles or fun today.  There was one moment of laughter as he said Bingo Duty would fall from 20% to 20% (actually it was 22% I think) and an interruption as the Speaker had to silence a rowdy Tory – whose interruptions were not audible to the TV microphone but presumably he was on the phone to his “man in the city” telling him to sell sterling and arrange his Swiss visa forthwith – just as fast as the Duck House could be disassembled, carried across the moat and put into a van.

In any case, poor old Mr Darling….this PBR really is “more of the same”. 

What I don’t’ understand is why, if the £175Bn borrowed this year is due to “saving the world” and the banks, why it is we are forecast to borrow £176Bn next year.  Or maybe, as Mr King says, our deficit is “structural” (a very polite way of saying we’re living beyond our means big style).

In any case, here’s the less dull bits (it’s all relative!)…..

1. NO change to Capital Gains this time (still 18%).
2. VAT will go back to 17.5% on New Year’s Day - and no announcement on future rate changes.
3. NO change to the 50% tax band (150kpa +) and loss of personal allowances at 100k.
4. A gimmicky 50% bank bonus “payroll tax” where discretionary bonuses are awarded between today and 6^th April (extendable!).  As bonuses that are contractually binding prior to 9/12/09 aren’t affected I wonder how easy banks will make it to work around this one.
5. Corporation tax for small companies is to stay at 21% (was supposed to go to 22% in April).
6. National Insurance increases in April 2011 – half a percent – but let’s face it the Tories may adjust things anyway – if elected.
7. No extension to the SDLT “Holiday” on residential properties up to 175k (so back to 125k thereafter in general).
8. A tweak to make really sure you can’t get tax relief for large contributions to a pension scheme if you earn over 150k – the 150k definition includes employer’s pension contributions.
9. 50p per month “phone tax” on your bills.  “It pays to talk” or “you pays to talk” might be better now, if grammatically poor.
10. Frozen allowances/rates this year (no inflation) into 2010 and no increase in the IHT nil band (U-turn).
11. No benefit in kind tax charge for company provided electric vehicles for staff.
12. A nice 10% corporation tax band (hey, didn’t we use to have that?) for profits from Patents to encourage development of “IP” in the UK.
13. A pile of wee changes to minority issues and technical issues which I won’t bore you with in this format.

We will have a nice “pdf” put into our website on the right hand side of the page, by tomorrow morning (I hope).

For fun – I’ve put some extracts of the 2008 PBR, the 2009 Budget and PBR here so you can quickly compare the “forecasts and the reality”.  I’m rather afraid I don’t trust the forecasts – but, to be fair, the figures this year are only £3Bn out on the most recent (Budget) forecast.  And what’s £3Bn out of £175Bn…..small change.

What does irk me is the use of phrases which only really mean something to the more savvy in society.  The Chancellor said

“….the Government will ensure:

public sector net borrowing, as a share of GDP, falls every year and is more than halved by 2013-14;”

I would reckon that the “ordinary person” would think a reference to net borrowing falling would mean the Government finishes a year owing less than at the start….not so.  What he really means is the rate of annual borrowing will reduce each year – but we’ll still be digging ourselves further into the debt pit.

I’m no economist – so maybe it’s all just fine to borrow all this money – but I’m sure by Aberdonian forebears would not have been happy with the plan.  Last time we borrowed this much it was to beat the Germans.  This time it seems to be necessary so we can continue to pretend we’re a rich G7 country.

Here’s the extracts I referred to above -

EXTRACTS FROM 2008 PBR (NOV 08):

I, too, am forecasting that output will continue to fall in the UK, for the first two quarters of next year.

But then, because of decisions taken in this Pre-Budget Report, I expect it to start to recover.

GDP growth for 2009 is forecast to be between –¾ per cent and –1 ¼ per cent……

….As a result of the combined effect of lower revenues, our commitment to maintain spending and extra support to the economy, borrowing will rise to £78bn this year and £118bn next, or 8.0 per cent of GDP.

But then, from 2010, as I take action to reduce borrowing when the economy begins to recover, borrowing will fall to £105bn, £87bn, £70bn and £54bn.

And by 2015/16, we will again be borrowing only to invest.

This means the projection for the underlying budget deficit, excluding investment, will be 2.8 per cent of GDP this year and 4.4 per cent next year.

But consistent with my commitment to sustainability, as a result of my announcements today, the underlying budget deficit, excluding investment, then improves, as a share of GDP, to 3.4 per cent , 2.3 per cent, 1.6 per cent, 1 per cent and projected to reach balance by 2015/16.

Mr Speaker, the economic crisis and the action by governments across the world, will inevitably mean sharp increases in national debt relative to GDP.

Again the UK will be no exception.

But because we started from a stronger position, our debt will remain below that of most other major countries.

UK net debt, as a share of GDP, will increase from 41 per cent this year, to 48 per cent in 2009/10, 53 per cent in 2010/11, before peaking at 57 per cent in 2013/14.

EXTRACTS FROM BUDGET 2009 (SPRING)

Mr Deputy Speaker, the UK economy contracted by 1.6 per cent in the last quarter of 2008.

For the first quarter of this year, I expect the economy will again contract by a similar amount.

And my forecast for GDP growth for the year as a whole will be –3 ½ per cent – in line with other independent forecasts.

But because of our underlying strength, the measures we are taking, domestically and internationally, I expect to see growth resume towards the end of the year.

Next year, because of the pick up in world demand, the continuing benefit of lower prices, and the substantial recovery measures put in place, I am forecasting growth of 1 ¼ per cent in 2010.

Our own figures for public sector net borrowing will be £175bn this year, or some 12.4 per cent of GDP.

From 2010, as the economy starts to recover, and the measures announced in November and today take effect, borrowing will fall to £173bn, then £140bn, £118bn and £97bn.

As a share of GDP, our borrowing will be 11.9 per cent of GDP next year, and then, as we move towards balance, 9.1 per cent in 2011-12, then 7.2 per cent and 5.5 per cent in 2013-14.

Mr Deputy Speaker, this downturn will inevitably mean sharp increases in national debt relative to GDP.

UK net debt, which includes the cost of stabilising the banking system, will, as a share of GDP, increase from 59 per cent this year, to 68 per cent next, 74 per cent in 2011-12, 78 per cent and 79 per cent in 2013-14.

EXTRACT FROM PBR 2009

Over the year as a whole, the UK economy is expected to have contracted by 4.75 per cent this year.

But as I forecast at the Budget, I expect a return to growth in the fourth quarter. 

Next year , I forecast growth of between 1 and 1.5 per cent – as I said at the Budget.

At the Budget, I forecast that public sector net borrowing would be £175bn this year and fall to £97bn in 2013-14.

Because of the severity of the recession my forecast for borrowing this year is £178bn.

Next year it will fall to £176bn.

And, as the economy recovers and the deficit reduction plan starts to take effect, then falls to:

• £140bn;
• £117bn;
• and reaches £96bn in 2013-14, slightly lower than I forecast in April;
• before falling to £82bn in 2014-15.

As a share of GDP, borrowing will be:

• 12.6 per cent this year,
• 12 per cent next,
• then 9.1 per cent,
• 7.1 per cent,
• 5.5 per cent in 2013-14,
• and falls to 4.4 per cent in 2014-15.

As a result of the lower provision for possible losses on our financial sector interventions, I can forecast net debt will reach 56 per cent of GDP this year.

It will then increase to 65 per cent next year and 78 per cent by the end of the forecast period in 2014-15

AS EVER, THIS BLOG IS AN INFORMAL COMMENTARY BY OUR HEAD OF TAX, DONALD PARBROOK.

HIS VIEWS ARE NOT NECESSARILY SHARED BY HIS FELLOW DIRECTORS AND THE FIRM.

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