The Government puts the boot in

July 11th, 2008

Government ministers have finally admitted what many people have feared for months, the planned road tax increases aimed at punishing drivers of the most polluting cars will leave 9.4 million road users paying more tax.

Official estimates say vehicle excise duty will rise for 43% of vehicles made since 2001, by up to £245 for the most polluting ones, but will fall for 18% of vehicles.

The estimates, which were revealed for the first time in a Parliamentary answer by a Treasury minister, have reignited the row over road tax changes, which have attracted criticism from a number of MPs, both in Government and opposition.

It is calculated that the Exchequer will receive more than £1 billion in additional revenue from the scheme by 2011.

Environmental groups have urged the government to “stand firm” on plans to raise excise duty. Friends of the Earth has also called on ministers to invest the money raised in better public transport, which it said was a “greener” alternative to the car.

AA president Edmund King said the changes were “politically dangerous” with high petrol prices already pushing up the cost of motoring and said the new figures confirmed its “worst fears”. In addition to this people taking out guaranteed car finance have found rates increasing.

Nearly 50 Labour backbenchers had signed an amendment to the Finance Bill asking the government to rethink its plans for car tax, but the government managed to avert a rebellion in the Commons.

Among ideas being considered to help those worse off by the tax changes are help to trade in older, high-polluting cars, and a longer transition period in which to sell them.

From a macro-economic perspective in the long term green taxes are in fact a good thing because they correct the market failure and minimise pollution. However, this has short term significance as well at a time when the economy is faltering and people are feeling the pinch or rising prices.

For the Government to be pushing ahead with a measure that will increase the costs of motoring at a time of the world oil price surging and inflation emerging shows a complete lack of political understanding but, more importantly, it shows that the Government is totally out of touch with the lives of the people of this country.

Don’t forget, ministers do not pay the road tax for the limousines, and they do not have to fill the tank either.

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The UK economy faces a ‘serious’ risk of recession

July 8th, 2008

The most common definition of a recession is when the economy is in negative growth for two successive quarters. After the claims emerged the London Stock Exchange sank followed by global markets because of the concerns.

The BCC also claimed that firms in the manufacturing and services sector were suffering as domestic sales and orders have slowed over the past three months. This has resulted in firms experiencing serious cash-flow problems.

Services firms, which include restaurants, gyms and tour operators, have been particularly hard hit. Sales and orders, job expectations and confidence in this sector had hit their lowest levels since the recession of the early 1990s. This news is likely to add to the wave of pessimism sweeping across the business world, from retailers to house builders. Last week, the housing market suffered another blow when the Bank of England said mortgage approvals had plunged by 28% in May and are 64% lower than a year earlier.

House builders are cutting jobs and offices as the property slump continues. Before the news of the job cuts at Persimmon, rival builders Taylor Wimpey and Barratt Developments had announced 2,000 redundancies in the past week. Mortgages and loans have also been hit with many UK secured loans taking longer to complete.

Some economists believe the chances of a recession in theUK are now 50:50. They had hoped the slowdown in the economy would eventually reduce inflation, without turning into full-blown recession. With global prices for many essential products rising but the UK slipping into recession there is the real possibility that the UK could experience a period of stagflation, where the economy is in recession but inflation is still high.

This has not been seen in the UK since the 1970’s. It should be said that odds of 50:50 are considerable better than many pessimistic commentators are allowing for. However, it also makes a mockery of the governments oft repeated claim that the UK is better placed than other countries to weather the economic storm.

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UK consumer spending falling rapidly

July 6th, 2008

Research by Ernst and Young has revealed that
UK consumer spending power has fallen dramatically because of the rising cost of living. The average household is 15% worse off than it was five years ago, the Annual Discretionary Income Study says.

After household bills and tax, it found the typical family had less than 20% of its gross income remaining, compared with 28% in 2003. It added that rate rises and fuel bills meant “the worst could be yet to come”.

The comments came after Marks & Spencer warned of falling sales as customers turned to cheaper options, especially in food.

Meanwhile John Lewis sales fell 8.3% during the week to June 28 compared to the previous year, led by hefty drops in home and electrical goods sales, with its out-of-town stores being hardest hit.

The Ernst & Young report said that monthly discretionary income for a typical household was now £772.79 – compared with £909.84 in 2003/04.

And with higher interest rates and a growth in the amount people are borrowing to buy property – average monthly mortgage payments are just under £735, 78% higher than in 2003/04. On top of this credit card bills and UK debt consolidation loans have lead to a descrease in disposable income.

But the report also said that increased competition had brought down the cost of fixed line telephone costs while lower servicing charges and tyre costs had reduced the cost of car upkeep.

However, the bleakest tone of the report is saved for the near-term future. If, as predicted, utility prices rise by as much as 40% later this year and interest rates are increased to control rising inflation, consumers and consumer facing businesses will face even bleaker times.

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