£12 billion black hole has opened up in UK public finances

worldtraveller

Ministers are set to be told this autumn that a £12 billion black hole has opened in the public finances, in a forecast that threatens to derail the coalition’s deficit reduction strategy and prolong austerity well into the next parliament.

The Financial Times has replicated the model of government borrowing used by the independent Office for Budget Responsibility, which suggests the structural deficit in 2011-12 is now £12bn higher than thought, a rise of 25 per cent.

With only two months to go before the chancellor’s autumn statement on November 29, the coalition is on course to face the choice of prolonging austerity measures well into the next parliament or to introduce more spending cuts or tax increases to balance the government’s books on the current schedule.

Putting the public finances back on track at the next Budget would require the equivalent of raising value-added tax from 20 per cent to 22.5 per cent.

FT

Bloomberg

Not good news........._pale_

pqrdef

worldtraveller wrote: »

With only two months to go before the chancellor’s autumn statement on November 29, the coalition is on course to face the choice of prolonging austerity measures well into the next parliament

Huh? Deficit reduction measures are supposed to be permanent. Otherwise the deficit goes straight back to square one. Reducing overspending for a year or two doesn't solve anything. Do people still think the new regime ends and then we go back to spending as before?

worldtraveller

pqrdef wrote: »

Huh? Deficit reduction measures are supposed to be permanent. Otherwise the deficit goes straight back to square one. Reducing overspending for a year or two doesn't solve anything. Do people still think the new regime ends and then we go back to spending as before?

I understand where you are coming from, but the piece is not about general deficit reduction measures it's specifically about the Government's current schedule to eliminate the structural deficit by 2015, which, with the £12 billion hole, would not now be possible without extending the current schedule, or by increasing tax and/or reducing spending further than planned.

Mrs_Bones

worldtraveller wrote: »

I understand where you are coming from, but the piece is not about general deficit reduction measures it's specifically about the Government's current schedule to eliminate the structural deficit by 2015, which, with the £12 billion hole, would not now be possible without extending the current schedule, or by increasing tax and/or reducing spending further than planned.

Which do you think they will opt for?

I thought their whole reason for trying to reduce the deficit so quickly was to get all the pain supposedly out of the way before the next election.

worldtraveller

Mrs_Bones wrote: »

Which do you think they will opt for?

I thought their whole reason for trying to reduce the deficit so quickly was to get all the pain supposedly out of the way before the next election.

I'm getting that warm fuzzy feeling :eek: that we can certainly expect some higher/new taxation, but it would have to be something that would have general support from the electorate. Maybe on something like property and land? Who knows? However, whatever happens, I'm pretty sure that we can all expect to be paying a lot more direct/indirect tax in the coming years anyway.

Pennywise

MFW_10YRs wrote: »

Taxation needs to go back to its historical levels. We used to have 25% Basic Rate tax and subsequent governments have reduced this down to the current 20%, funded for the most part by borrowing. It wouldn't surprise me if we see a return to 22% in the short term with perhaps a reduction in the 40% tax threshold to capture more people.

Hopefully once we get past the current financial difficulties we will see a return to 25% basic rate tax and an increase in the higher rate tax threshold so that it returns to being a tax for the higher paid.

In fact basic income tax was actually far higher than that. I'm sure I can remember it being 33% in the mid 80's (but I may be wrong!)

But don't forget the substantial increases in national insurance and VAT, among others. The headline income tax may be less, but it's been made up for with other "non headline" taxes.

Actually, I think at 25% basic tax rate would be good, but alongside scrapping of national insurance. 25% for everyone rather than 36% for workers sounds good to me, so that it brings in the wealthier pensioners, and those living on unearned income, such as dividends, investments, property, etc.

For far too long have the "workers" been unfairly taxed more than a non-worker with the same levels of income! National insurance must be the most unfair taxation we are suffering and very few people seem to realise it nor argue for change. It must be the worst "stealth" tax we have. Perhaps it's because it's not charged on the "usual suspects" i.e. pensioners, benefit claimants, richer people able to live on unearned income - those who don't usually make too much fuss, i.e. the workers - who we need more than ever now!

I personally think the deficit and the tax system are too much of a problem to tinker around the edges with. An increase in income tax to 22% is far too small to have the desired effect. We need drastic changes in the tax system to really challenge the status quo - we need to do the unthinkable with the tax system.

pqrdef

Pennywise wrote: »

In fact basic income tax was actually far higher than that. I'm sure I can remember it being 33% in the mid 80's (but I may be wrong!)

I remember when it was 8s 3d in the £, that's 41.25%. With NI on top. Top rate I think was 98% at one point.

Pennywise wrote: »

For far too long have the "workers" been unfairly taxed more than a non-worker with the same levels of income!

We were told it was to pay for sick pay and dole, which were only applicable to workers. People who've paid NI as workers all their working lives and expected not to pay another penny when they retired are going to be very p1ssed off now if they have to start paying NI replacement tax out of their pensions.

vax2002

The solution is to shrink the state smaller than the economy, currently we have more people employed out of the tax payers purse than we have those who are not paying tax.
Just open any edition of the guardian to see the rise in non jobs has not halted one bit.
Head Diversity project coordinator on 140K a year .
assistant diversity project coordinators x 3 57k a year plus essential car allowance.
What do they do again ?

Pennywise

pqrdef wrote: »

We were told it was to pay for sick pay and dole, which were only applicable to workers. People who've paid NI as workers all their working lives and expected not to pay another penny when they retired are going to be very p1ssed off now if they have to start paying NI replacement tax out of their pensions.

Well, the dole and sick pay isn't restricted to workers is it? There are people who've never worked happily living on benefits Nor is state pension restricted to workers - not with the pension credit.

To keep the majority of pensioners happy, the annual allowance can be increased by a few thousand, to keep, say, those with incomes of £20k to £25k or so no worse off. Pensioners with incomes over £25k (that's each) i.e. national average wage, can afford to pay a bit more tax.

People have been working in expectation of retiring at 60 or 65 and now find they'll have to work longer. Times are hard and people are living longer. Taxes have to go up FOR EVERYONE, not just the workers. Everyone with incomes over the national average must be made to pay more tax, not just the few unlucky enough to be workers. Alternatively, how about some form of unearned tax supplement, i.e. a higher rate on income other than that on which NIC is paid?

NIC has never been ring-fenced for the welfare state - it would never have been enough to pay the liabilities. It's always been nothing but another tax but open to abuse, so let's close the loopholes and make everyone pay the same "tax" rate if their incomes are the same - i.e. same tax for 30 year old earning £30k as would a pensioner with total income of £30k - anything else is unfair.

pqrdef

worldtraveller wrote: »

I understand where you are coming from, but the piece is not about general deficit reduction measures it's specifically about the Government's current schedule to eliminate the structural deficit by 2015, which, with the £12 billion hole, would not now be possible without extending the current schedule, or by increasing tax and/or reducing spending further than planned.

What does "extending the current schedule" mean? If the expected savings from planned cuts are £12bn p.a. short, the only way to achieve the target is to find an extra £12bn p.a. worth of savings.

It may be there's nothing left to cut this side of 2016. But there isn't some plan B to shrink a deficit without finding cuts or tax increases.

worldtraveller

pqrdef wrote: »

What does "extending the current schedule" mean? If the expected savings from planned cuts are £12bn p.a. short, the only way to achieve the target is to find an extra £12bn p.a. worth of savings.

It may be there's nothing left to cut this side of 2016. But there isn't some plan B to shrink a deficit without finding cuts or tax increases.

The Government has a schedule of austerity measures currently that are specifically aimed at eliminating the structural deficit by 2015. However those specific austerity measures may end up having to be extended beyond 2015 (ie. the current 2015 target would not be met) if the structural deficit cannot be eliminated with higher taxation and/or reduced spending.