Archive for the 'Osborne' Category

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Today’s autumn statement is the first big Treasury event since GE2005 when Osborne has not been Chancellor or Shadow

Wednesday, November 23rd, 2016

But don’t write off George yet

For a man who still looks quite youthful Osborne has been at the top of British politics for a long time. He was in his mid-30s when the then CON leader, Michael Howard, made him shadow chancellor. He kept hold of this brief throughout the coalition years and when the Tories won a majority in May last year.

His sacking by the incoming May leadership in July marked the end of an era. He’s now a backbencher. For unlike his close colleague, David Cameron, Osborne decided to stay around under the new ledership even though he doesn’t have an official role anymore.

But Osborne is still a player and my guess is that when the Theresa May leadership is eventually toppled George will still be there.

I’ve always had a respect for him after him meeting him for the first tine even before he was an MP a few months before the 2001 General Election. Tony Blair was totally at his peak dominating everything. He seemed to be unstoppable.

The occasion was a college dinner Oxford and I found myself sitting next to the then PPC for Tatton. How could, I quizzed the aspiring MP, Blair’s NewLab ever be beaten. He responded with a suggestion that turned out to be highly prescient – “Labour could be vulnerable if we played the English card”.

He’s always been the great political strategist. Watch this space.

Mike Smithson




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The boundary review is so favourable to CON because Cam/Osbo defied the Electoral Commission to fix it that way

Wednesday, September 14th, 2016

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The former Top Tory Two have left TMay a great legacy

There’ve been two major changes to the electoral system that the Tories have brought which have combined together to make the boundary review so favourable to them.

The first is the introduction of individual voter registration which has had the effect of seeing that millions of names on the electoral roll had initially been lost. The second is the introduction of equal sized constituencies.

The big question was when you set the initial voter count for your starting point for the boundary review. The Electoral Commission wanted that to have been the end of 2016 to allow the initial impact of individual voter registration to have sorted itself out.

Cameron/Osborne insisted that this should be December 2015 which means that voter numbers used for the boundary calculation are something like 2m short of what they are today. The seats most affected are those with large numbers of younger people who have been most hit by the registration rule changes.

This went through Parliament in October 2015. There was an attempt in the Lords to keep to the Electoral Commission timetable but that failed by 11 votes due to what appeared to be a whipping cock-up on the Labour side.

There were two votes. The first on the amendment was a defeat for the Tories. Then, inexplicably, on the amended motion some LAB peers appeared to have slipped away and the Tory move got through.

Now those behind the overall plan are gone and Mrs May is the beneficiary.

Mike Smithson




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The sting. How George Osborne is tackling the deficit

Sunday, January 31st, 2016

We’re all in this together, so David Cameron told us before the 2010 general election.  This assertion was received with derision by many outside the Eton-attending classes.  And sure enough, when the coalition came to power after the election, the impact of the deficit-reduction measures was felt most keenly by those at the bottom of society.  The Treasury explicitly targeted spending cuts over tax rises in the proportion of 80:20.  With most government spending being deployed on the poorest in society, the direct impact of this approach was regressive.  Organisations like the IFS were quick to point this out at successive budgets, much to the government’s discomfiture.

The treatment of the richest in society was a regular source of friction within the government in the last Parliament, and not just between the coalition parties.  When the top rate of tax was reduced from 50% to 45%, rumour had it that George Osborne wanted to reduce it to 40% and introduce a mansion tax but that this was vetoed by David Cameron.

Nearly six years on from the Conservatives taking over the reins of power and the deficit still yawns wide.  The Conservatives committed at the last election to reducing spending by a further £12 billion.  Labour failed to force the Conservatives to spell out just how they were planning to achieve this.  When the Conservatives moved from the abstract to the concrete, their own backbenchers disowned the idea of scrapping tax credits, forcing George Osborne to retreat.

The hole created by abandoning the tax credit cuts is smaller than might be imagined since the system of tax credits is due to be replaced by universal credit in the next couple of years (it remains to be seen whether that actually happens). Still, the Chancellor has needed to seek new ways of balancing the books.  And he is confronted by a numerical problem.  A handful of unhappy Conservative MPs combined with a unified opposition can scupper controversial plans. Sometimes the fact that government’s majority is just 12 really matters.

How to solve this problem?  In his ideal world, no doubt, George Osborne would ensure that Conservative MPs were as effectively programmed as the SNP intake.  In the real world, there are too many populist backbenchers of all shades of opinion in the party, stretching from Heidi Allen to David Davis, to make it safe for him to rely on their unstinting support.  Each will have their own hobby horses.  All those hobby horses will need to be accommodated.  With the Lib Dems much reduced in number and having moved from government to opposition, it is paradoxically harder for a pure Conservative government with a small majority to impose spending cuts than for the previous Conservative/Lib Dem coalition with a much larger majority.  So much for the moderating influence of the Lib Dems.

If the Chancellor cannot reduce spending easily, he will need to look again at tax rises.  Those may not be particularly popular within his party but if appropriately targeted may not be opposed by the opposition parties.   So the Chancellor needs to find targets for tax rises who are acceptable to the opposition parties and where the impact on tax take will be positive, at least in the short to medium term.

The inexorable logic of the need to close the deficit, the government’s small majority, its unreliable backbenchers, the need to obtain the acquiescence of some opposition MPs and the need to raise substantial revenue is that George Osborne needs to increase the tax on richer members of society (who in any case have the most money to be relieved of).  And that is exactly where he has been focusing.

Over the last few years there has been much focus on the top 1% and their share of wealth (and support of the tax bill).  30% of all income tax receipts come from this group.  Many right-leaning commentators have expressed the view that this group are highly mobile and tax rises on them would prove counterproductive.

The Chancellor, it seems, partially disagrees.  He is less concerned about the top 1% and more concerned about keeping the top 0.1% happy.  The top 0.1% of income taxpayers – just 30,000 individuals – pay 14% of all income tax receipts.  The country’s tax base is very dependent on a very few very wealthy individuals.  I’ll call these the super-rich.

The Chancellor is largely leaving this group alone to focus on the next 0.9% or so.  This group is still well-upholstered but nowhere near as mobile as that uppermost group.  If you’re a partner in the Birmingham office of an accountancy firm or a managing director of a company in the south east of England, opportunities to emigrate will not come along on a daily basis.  Some will be able to consider their options but most will just have to lump it.  I’ll call this next 0.9% the affluent.

So how has the Chancellor gone after the affluent?  The super-rich benefit especially from the low top rate of income tax.  By tackling the reliefs which are enjoyed particularly by the affluent rather than the super-rich, he stings them most.

Look at how he has changed the taxation of non-doms.  By upping the minimum tax take from non-doms, he has forced all bar the highest paid onto the UK tax system in full.  The super-rich will have sighed at seeing the minimum increase but for so long as their non-dom status puts them at an advantage over taking British domicile, they probably won’t be better off decamping elsewhere either (or anywhere that isn’t social death to be seen living in, anyway).

The annual allowance for pension contributions has been reduced in successive budgets.  In 2010/11, the annual allowance for pensions was £255,000.  Next year for those on over £210,000 a year, it will be £10,000, with fresh horrors awaiting the affluent in the budget, no doubt.

Buy-to-let mortgages are no longer tax-deductible and stamp duty for those buying second homes and for buy-to-letters is now to be set at a much higher rate (but not for companies with more than 15 properties).  It’s the super-rich wot gets the gravy it’s the affluent wot gets the blame.

No one will weep for the affluent.  They earn more than most journalists so they don’t even benefit from the shameless special pleading that you often see in newspaper columns.  There is, however, a catch.  For a rising number of people, paying tax is something that other people do.  There must be a limit to how much can be expected of a relatively small number of cash cows before the affluent are milked to death.  With a continuing need to close the deficit, we look set to explore this further in the coming years.

We can’t go on like this, so David Cameron told us before the 2010 general election.  But for those in the sights of the Chancellor, they may not have an option.

Alastair Meeks



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How George Osborne is hoping to raid pension pots without you noticing

Sunday, January 10th, 2016

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Alastair Meeks, former chair of the Association of Pension Lawyers, looks at George Osborne’s plans for pensions.

When I qualified as a pension lawyer, my first boss used to say: “Alastair, when people hear the word ‘pension’, they think ‘old’, they think ‘grey’, they think ‘boring’.  But if every time you hear the word ‘pension’ you replace it with the word ‘money’, suddenly it seems so much more exciting.”  Today I’m going to talk to you about money.

We have now had five years of austerity and the deficit stubbornly refuses to close completely.  One of the most successful cost-savings measures was taken very early on, when the government changed the basis of inflation from RPI to CPI for public sector pension and most state benefits.  This saved billions – roughly £4.3 billion in 2015/16 alone and rising every year (a cumulative value of the order of £100 billion).  Not bad for a technical change that no one really understands.  The government may have found another similar technical change for pensions that no one really understands.

In the 2014 budget, George Osborne made a dramatic announcement relaxing the restrictions on taking pension money.  Since then, we have had a succession of announcements at budgets and Autumn Statements that indicate we are in the middle of a longterm plan to remodel the foundations of pension scheme taxation.  The reaction of most people when they read the words “remodel the foundations of pension scheme taxation” is to run away whimpering.  But never leave a Chancellor of the Exchequer with a deficit to plug alone with your money.  He may be about to commit grand larceny.

In 2014, the Chancellor announced that from 2015 pension pots could be cashed in in full, recognising the unpopularity of annuities.  This announcement was hugely popular with many of those coming up to retirement.  It was just as popular inside Number 11, because members who cash in their pension pots over and above the previous permitted maximum level pay tax at a high marginal rate, bringing in money into the exchequer and at a higher rate than would otherwise have been paid on the money coming out.  It constitutes an optional yet popular tax – perhaps the first since the National Lottery was launched.

But this was not just a money-raising venture.  A white paper accompanied the budget to explore how a balance could be struck between giving savers full access to their pension and making sure that they were fully informed about the implications of doing so.

(Financial education is the weak link in the whole reform.  Not enough people have the necessary knowledge to make informed decisions about their options and not enough pension pots are yet large enough to justify requiring everyone to pay for tailored advice.  The government has required generic guidance to be made available.  It remains to be seen whether that will be good enough.)

With a government declaration of intent that savers should be given better access to their own money, it was always likely that we would see a return to this.  Sure enough, the post-election budget trailed the possibility of a much more major change to pension taxation, bringing it into line with the tax regime for ISAs.  We are due to hear more about that in the next budget.  Hold onto your wallet.

It should be pointed out that aligning pensions and ISA tax regimes makes quite a lot of sense in the abstract.  Most people think about saving as a single activity.  Why should different forms of saving be taxed differently?  The difficulty comes in the detail.

At present, pension contributions are tax deductible, investment income and capital gains are also tax deductible, while pensions are taxed in payment – though a set level of lump sum is tax free (Nigel Lawson called this much-loved but anomalous).  In the new world where savers can take all their pension savings in one go, the tax regime strongly influences how in practice savers access their savings.

So, the government has floated the idea that in future we should get our payments from pension schemes tax free.  To make that work, contributions would be made from net pay, not gross pay.  Investment income and capital gains would remain tax exempt.  Savers could then get their hands on their own loot in whatever way they chose without having to worry about falling into taxation pitfalls.

Let’s leave to one side the administrative complexities of the transition (immense, if you must ask) or the problems that such a change would potentially cause defined benefit pension schemes (also immense).  Those are problems for pension geeks like me.  Instead, I’ll look at the implications for HMG.

If pension contributions are paid from net pay, tax receipts in the near future would be markedly higher in the short term than they otherwise would have been.  That’s handy for a government seeking to close a deficit.

Next, because contributions are paid from net pay, those who benefited from higher rate tax relief on their pension contributions would be disproportionately affected up front.  The government would have found a way to sting higher end top rate taxpayers right now.

Next, because pensions are paid in retirement at a time when most people’s income is lower than when they were in employment, the value of the tax foregone at the payment stage is considerably lower than the value of the tax currently being foregone at the contribution stage.  If, for example, you’re a higher rate taxpayer now and you expect to be a basic rate taxpayer in retirement, you won’t just lose out because you pay tax sooner, you’ll lose out because your marginal rate will be higher.

Finally, the government would have abolished the additional cost of the tax free lump sum without anyone even noticing, because the cost would be taxed at the contribution stage, not foregone at the payment stage.

I have no doubt that the Treasury has a clear idea of the improvement in the tax position that its floated reform would bring in.  I have no doubt that it is a very large number indeed.  The net cost of tax relief in 2011/12 is estimated by the Treasury at £38.3 billion, though others including the IFS have queried this figure.  The cost to the Exchequer of the tax free lump sum by itself has been estimated at £2.5 billion a year.  Even with the benefits coming in over time by transition, the numbers could be eye-popping.

Pensions professionals are generally quaking at the possibility of the change (admittedly for reasons of personal workload and aesthetics as much as anything else).  My expectation is that the government will push it through, simply because of the size of the tax gains to be made.  The fall-out is likely to be relatively minor.  Can you work out how much money you would stand to lose personally?  Nor could just about anyone else.  With a few well-chosen sweeteners, most people would be too uninformed to realise that they’d been robbed blind.

So watch out for this heist on 16 March.  It promises to be a record-breaker.

Alastair Meeks

Alastair Meeks is Pensions Partner at Pinsent Masons and has written books on the topic of pensions law.



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So what happened to the long-term plan, George?

Saturday, November 28th, 2015

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Labour’s current travails have hidden the Chancellor’s own problems

George Osborne is fond of saying that he’s fixing the roof while the sun is shining. Well, this week he decided to knock off early and catch some rays. After all, what’s the rush? It’s not going to rain overnight. Mañana.

Nor will it rain economically tomorrow, next week, next month and in all probability, next year. The economy is growing healthily, employment and wages are rising, inflation remains subdued, consumer borrowing is modest by historic standards and while there’s a house price boom in London, that’s largely down to local factors. There doesn’t seem much risk of either imminent overheating or a credit crunch.

Which is probably why when the OBR found £23bn down the back of George Osborne’s sofa, the Chancellor decided to spend pretty much all of it rather reduce the deficit faster. That spending – on tax credits amongst other things – has bought off plenty of political opposition, though at the cost of conceding the point.

All this is now easily forgotten. To be fair, it did happen nearly half a week ago and much has taken place since then. Above all, Labour has once again indulged in directing their fire at their own feet; something they’ve done so frequently since May that their lower extremities probably resemble Swiss cheese.

However, neither Osborne nor the wider government can assume that Labour will continue to be so self-absorbed and fractious for the whole of the parliament – or that if they are, some other party won’t find themselves capable of providing a decent opposition. Had one such existed now, Osborne would be under a fair bit of pressure and not only because of his U-turn.

Recessions do not run to timetables. We cannot predict the next one simply on the basis of when the last was; events play too large a role. Some of these events we can predict with a degree of accuracy: it’s possible to model for labour market tightness, private sector borrowing, house prices and so on. Other events, particularly those from overseas, can come out of the blue. Which is a problem for forecasters and tends to result in forecasts being projections rather than predictions (not least because even if you know that a bubble is going to burst, it’s almost impossible to work out when: in October 2007, just after Northern Rock had gone bust, the government was still predicting steady annual growth of around 2.5% and borrowing of about £40bn a year for the next three years).

And against that uncertainty, Osborne has kicked the can a little further down the road at a time when Britain’s deficit is still worse than it was before the last recession, public debt is vastly worse and interest rates remain at ‘emergency’ lows. In the big scheme of things the £23bn doesn’t matter much: over the parliament, it’s less than a penny per pound of expenditure. What’s more significant is the signal it gives as well as reducing future options.

Labour’s vacation of the centre ground (and indeed, the centre-left), combined with the Lib Dems’ near-annihilation has provided Osborne with an historic political opportunity to enable the Tories to dominate for years, as New Labour did and in like manner. The danger, as with Blair and Brown, is that the dominance in the centre comes at the cost of office-holding for its own sake which not only has a tendency to develop unhealthy relationships with client voting groups but also leaves a party lacking in ideological direction. Playing against sub-par opposition also allows laziness to creep into your own game.

The Conservatives have few excuses now: they’ll have run the economy for ten years by the next election, for five years by themselves. With Labour wracked by division, dissent and all-round incompetence, now should be the moment for Osborne to take the tough but necessary action to bear down further on the deficit. It won’t last forever.

David Herdson



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Alex Salmond tells the Commons about this morning’s PB Osborne betting tip

Wednesday, November 25th, 2015



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George Osborne’s first PMQs is a reminder of how strong his leadership chances are

Wednesday, June 17th, 2015

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Knowing the date of the PM’s departure could be the key

It’s a big day for George Osborne. Cameron is away so, as the First Secretary of State in the new Conservative Government, he will be taking PMQs for the very first time – a very clear statement of his position in the pecking order.

Looking back he has a lot in common with James Callaghan in 1976. It was widely agreed that in the LAB contest of that year he had a head start because he knew that Harold Wilson was going to resign and when that was likely to happen. Callaghan was prepared for Wilson’s shock announcement – the others weren’t.

Cameron going during this parliament will be less of a shock but the timing will absolutely crucial to the leadership election that will follow which maybe sooner rather than later.

Maybe a successful outcome to the EU referendum will be a key point. Wilson’s resignation came nine months after the 1975 European referendum.

All the focus in the current next CON leader betting has been on Boris with the Chancellor, George Osborne, some way down in the betting. This is crazy. In all of this Osborne has got one massive ace up his sleeve – his relationship with David Cameron who has given George a huge influence over the way the government operates and, crucially, which Tory MPs gets preferment.

Even more important in the view of insiders I’ve spoken to is that George is much more likely to have knowledge of and quite a lot of influence control over the timing of Dave’s exit.

    I was told last week that Cameron will go at a point which will most help Osborne’s chances.

Osborne is the political strategist behind the Cameron leadership and much of the credit for last month’s victory can go to him.

To my mind George should be favourite to succeed. I’ve been building up a position at odds of 5/1 and longer.

Mike Smithson





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Another PB betting tip comes good

Tuesday, June 25th, 2013

It’s not often that apparently long-term political bets come good very quickly and the bookies pay out.

Last Thursday I urged everybody to get on 3/1 that Ladbrokes was offering that George Osborne would be called Jeffrey in the Commons before the end of the year.

As it turned out someone did call Osbo just that before Ladbrokes had got their market up and quite rightly that was not counted.

But today at Treasury Questions Labour’s AB’s Anas Sarwar also used the Jeffrey word, which Obama had mistakenly called Osbo last week at the G8 meeting, and the bet became good.

Good on Ladbrokes for settling the market so fast.

Mike Smithson

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