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The Credit Cruncher was conceived to help you to keep up to date with credit crunch and recession developments, it provides some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Recently, we have begun to look at how BREXIT will affect the UK economy. Please feel free to leave comments where relevant.

9 Dec 2009

Here comes the tax...

It is no surprise that there has to be a reckoning for the vast amount of money spent during the recent financial crisis, and the Government's Pre-Budget Report indicates that this time has just arrived.
VAT is already set to rise again in January, and we are still wondering what effect this was ever supposed to have on the economy... After all, the really essential items such as food and children's clothing are not taxed anyway. The costly step of temporarily lowering VAT appears not only to have been an encouragement to buy luxuries in the depths of a recession, but a slap in the face to those who have struggled to buy essentials for whom the tax drop has had no benefit whatsoever.
National Insurance is also set to rise by 0.5%, and the temporary stamp duty 'holiday' is to cease, and bizarrely, duty on bingo is to be reduced - Great that the government is giving a little tax relief to those who spend their money on frivolous gaming...
This Government is not adverse to making sweeping popularist gestures and maybe they believe there is a bed-rock of labour support in the Castle Bingo houses or the growing online bingo sites such as Wink Bingo? Either that or they think more people should actually be encouraged to play Bingo. Is this a well-considered, well-thought-out policy thrashed out in Whitehall offices or simply a random policy picked out of a tombola - with Camelot looking on just to ensure that the taxes changes are in fact entirely random and not part of any kind of intelligent thought patterns?
Of course, the most popularist tax that this Government are using to effectively cover up the more subtle taxes, is the tax on banking bonuses. The Government propose to tax bank bonuses that exceed £25,000 by 50% - there will be very few people who will be taking issue with this measure, however I can't help but believe that these frankly less-than-straight individuals will find a sleight of hand way around the proposed tax.
There are two measures which indicate the Governments thinking when it comes to paying for it's support of the banking sector during the crisis:
  1. The plan to restrict public sector wages and pensions
  2. 'Middle-earners' to pay more tax
The combination of these two policies guarantee that the public sector will bear the burden of raising revenue for the Government - they are going to take money from their own employees pockets... The 1% pay cap imposed on the public sector for the next two years is certain to keep wages rises below inflation, therefore effectively lowering income considerably across the board especially when combined with the planned VAT increase.
This sounds like the perfect recipe for a year of industrial action if ever there was one - try explaining to these workers that we are actually emerging from a recession as they count their pennies for the next two years. I happily admit that they are maybe fortunate to have reasonably secure jobs, but when the chips are down and the trade unions start to move, and a general election is looming... I think Gordon may well end up scrambling for that tax tombola again...

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