Thursday, 20 March 2014

Budget 2014

Yesterday (19-Mar-1014) George Osborne presented his second last budget of this parliament; the last one that will actually have much effect on the country before the next general election in May 2015.

In it he outlined plans to spend £732bn in the coming year compared to £720bn last year, of which he proposes to borrow £84bn compared with £108bn last year. So he is growing spending at about 1.7% compared to CPI inflation of 1.9% - thus this is a slightly deflationary budget, but he has held a lot of public pay rises down at 1% which will account for most of the hardship.

For the record the spending is as follows:

Department             2013/14     2014/15    Change

Benefits/pensions      £220 bn     £222 bn    +0.9%
NHS                    £137 bn     £140 bn    +2.2%
Education              £ 97 bn     £ 98 bn    +0.1%
Other                  £ 53 bn     £ 53 bn     0.0%
Debt interest          £ 51 bn     £ 53 bn    +3.9%
Defence                £ 40 bn     £ 38 bn    -5.0%
Police/justice         £ 31 bn     £ 32 bn    +0.3%
Social services        £ 31 bn     £ 31 bn     0.0%
Housing/environment    £ 23 bn     £ 25 bn    +8.7%
Transport              £ 21 bn     £ 23 bn    +9.5%
Industry/agriculture   £ 16 bn     £ 17 bn    +6.3%

The item that stands out is defence which has actually gone down in real terms. This is the saving from pulling out of Afghanistan.

The big winners are transport (HST2) and housing (a new city is to be built, called Ebbsfleet.)

It should not pass unremarked that debt interest payments are now (joint with "other") the 4th largest spending item.

The chancellor was able to report some fairly good economic news: GDP is ahead of forecast, and there are new forecasts for the years to come which are all ahead of previous forecasts. Borrowing is down and forecast to be lower than previously forecast. The new expectation is that the UK will stop borrowing and increasing its national debt in 2019/20, ie the end of the next parliament and only five years after Osborne's original forecast in 2010. But of course this is only a forecast - and all previous forecasts have been wrong.

George then took time out to inform us that a new pound coin is coming in 2017. This one will be twelve-sided and bi-metallic to fox those pesky forgers who have apparently replaced 1 in 30 of the pound coins in circulation with fakes.

There is a little subtlety to this. The original £1 coin was surprisingly similar in size and shape to the one euro coin and pretty clearly was gearing the UK up for entry into EMU. The new coin is a complete divergence so it seems Whitehall has decided the UK is never going into the euro.

There have been some objections to the coin having 12 sides because having an even number of sides (and not even rounded sides) makes it more likely to get stuck in slots. The 50p and 20p both have seven sides to avoid this problem.

It's a pound, but not as we know it.

The chancellor then promised us there would be no pre-election give-aways in this budget, before proceeding to announce the pre-election give-aways.

Fuel duty frozen; cider duty frozen; 1p off a pint of beer; spirits duty frozen; air passenger duty reduced for long haul (and private jets taxed for the first time!) Help-to-buy extended to 2020 and a shed load of cash handed over to various causes including a few million to mend potholes.

Corporation tax was reduced to 21%, with a view to getting it down to 20% next year. All electricity bills to be cut by a reduction on carbon tax. Bingo duty halved. (I didn't even realise there was a tax on bingo!)

The income tax allowance was raised to £10,500 and the 40% threshold raised slightly. Supposedly everyone earning less than £100K will see an increase in their take-home pay in April.

There was a slew of measures on the savings front. Cash and equity ISAs are to be merged into New ISAs. (George missed the obvious PR coup of calling them NISAs!) The contribution allowance is raised to £15,000 per year, but starting on 1st July for some reason.

The ISA changes are going to give the savings industry a few headaches. The merging of the types means that the great mass of people who only started a cash ISA now also have an equity ISA. ISAs have morphed into the old Personal Equity Plan - PEPs - introduced under Thatcher and cancelled by Blair.

Unfortunately the ISA rates have crashed recently. You'll be lucky to beat 2%.

The amount you can put into premium bonds has gone up from £30K to £40K and the number of millionaires "created" per month is increasing from 2 to 4. "Milly", who visits each new millionaire personally to tell them, and applies CPR if needed, has had her work load doubled. (I'm not quite sure why the million pound cheque needs to be delivered by a medically trained person but you can win a hundred million on the Eurolotto and you have to phone them.)

There are some new "pensioner bonds" which pay 4% - the limits are low, no-one will be making much here.

There are also big changes in person pensions. The requirement to buy an annuity is completely removed; which is excellent because annuities are terrible value for money at the moment. Recently retired people must be gritting their teeth that they have had to hand over their pension "pots" and now no-one has to. We may even see a movement started to get them their money back.

There were some other changes to private pensions which could in the long term be quite significant. Basically from the age of 55 you can withdraw cash from your pension at your marginal rate of taxation, previously you paid 55% if you wanted your money back in cash form. (There were allowances for small amounts though.) This is complex. Details here. It could be that some interesting tax dodges will become possible. The ramifications of the pension changes will not be apparent for some time to come.

The chancellor also mooted a couple of other big ideas. He wants a cap on welfare spending. He wants it limited to inflation so that the welfare budget cannot run out of control in the future. He also wants some sort of limit on government borrowing. These proposals are not fleshed out at the moment, but we could be seeing the birth of an American style "debt ceiling".

Locking in fiscal prudence is a good idea. In the past we have generally seen the Tories being careful with the money then Labour coming into power and spending like mad until the coffers are empty and the Tories are re-elected to fill them again. Breaking this cycle would be a boon to the country.

Milliband responded for the opposition (for some reason he responds to the budget but Balls responds to the Autumn Statement.) He made the good and valid point that despite all the good economic news people's living standards have been continually falling during this government's period in office. He winged again about the millionaire tax rate being reduced from 50% to 45% but since it was 40% when he was in government, and he never even taxed private jets, this point is starting to fall flat.

Monday, 17 March 2014

Second fat lady dies

Clarissa Dickson Wright, remaining "fat lady", has died. Her partner in cookery Jennifer Paterson died in 1999.

This blog had a soft spot for Miss Dickson Wright due to her dedicated rejection of all forms of political correctness; including relishing the title "fat lady" and writing in her autobiography that there are a frightening number of muslims in Leicester.

She was a reminder of better times when the British were more robust in their attitudes and not afraid to call a spade a spade.

Monday, 10 March 2014

The trial that no-one imagined would happen has started

When allegations first surfaced that Commons deputy-speaker Nigel Evans, Conservative MP for Ribble Valley, was suspected of homosexual rape times two, even this blog was highly doubtful that there was any substance to these allegations at all.

Now however he is on trial at Preston Crown Court charged with eight sexual offenses including homosexual rape.

He denies all the charges and trial is on-going.

Thursday, 6 March 2014

The Russians seem to be winning

Just to recap: since the tail end of last year the Americans have been sponsoring the overthrow of the Russia-aligned government of the Ukraine. A couple of weeks ago they finally managed to kick out the old government and put their people in. The ousted president Yanukovych fled to Russia where he is still regarded as the legitimate Head of State.

By way of response the Russians sent forces onto the Crimean peninsula - forces wearing no badges and flying no flags, somewhat illegal under the Geneva Conventions - and these forces, driving vehicles with Russian number plates, took over various military establishments. The Russian government laughably claimed these forces were local militia which had spontaneously formed.

Now the Crimean parliament has called a referendum on whether Crimea should be Russian or Ukrainian, to be held in ten days time. The result will of course be a resounding "we want to be Russian!" Moscow has already promised fast-track Russian citizenship for the locals and transfer into the Russian military with preservation of rank and salary for military personnel. (Interesting to note the contrast between the Scots having to wait three years for a referendum on independence after the SNP had been elected and the Crimeans waiting just ten days.)

Voting day will be Sunday 16th March. Give them a day or two to "count" the votes and by midweek we should see a matching vote in the State Duma (Russian parliament) accepting Crimea into the Russian Federation, after which the tanks will roll in for real and make it happen on the ground.

Thereafter the points will be counted and it will be seen that the Americans have made a small gain but the Russians have made a big one and henceforth will be a much bigger player in the Middle East.

Monday, 3 March 2014

The Black Sea is too shallow

It is looking like a bit of a war is shaping up in the Ukraine. The new government has issued call-up papers to men of military age and the Russians are building up their forces on their side of the straits of Kerch which separates Russia from the Crimean peninsular. There's about a one mile water gap between Russia and the Ukraine.

But why the Russian interest in the Crimea? Well, because it gives access to the Mediterranean. The deep water port at Sevastopol is the home of the Russian Mediterranean fleet. Time was they also used Odessa but they have pretty much been thrown out of there now. So if Russia wants to have any influence in the Middle East or North Africa they need somewhere to park ships in the Black Sea.

Without Black Sea ports they are reduced to operating out of the Baltic and ships out of the Baltic tend not to reach the Med if the Americans don't want them to. (A couple of years back the Russians tried to supply the regime in Syria out of the Baltic but that ship got turned back. It needed to refuel somewhere to make the journey and was denied everywhere after the Americans put a hex on it. That's just plain embarrassing for a country as big as Russia.)

The Russians do have the entire Sea of Azov and then some Black Sea coast line on the Eastern shores (which they annexed from the Ottoman Empire as it was collapsing 150 years ago.) But the water is darned shallow and getting shallower all the time.

The Black Sea is emptying into the Med. It's still deep in the West but gets shallower as you move East. The Sea of Azov is knee high in parts. You wouldn't get an aircraft carrier in there although you might be able to cross it with a tank.

So this is why the Russians have coveted the Crimea for centuries. There is natural deep water. This is why the Soviet Union moved so many ethnic Russians into the area and the Tzars before did the same.

The Russians do have another option. There's a port city on the Eastern shore called Novorossijsk but they have only recently started putting investment there. It will be decades before it is up to spec, and all the while the water is draining away. So at the moment all Russian eggs are in the Sevastopol basket.

After last week's American-sponsored coup-d'etat in the Ukraine it looked like the Russkies were going to be pushed right out of the Med. It's not surprising they are all over this. The "protecting ethnic Russians" is as good an excuse as any.