As a result of increased tax receipts and lower public expenditure, Chancellor George Osborne is £7 billion ahead of his target for reducing public debt. That has given him some wriggle room and there has been no shortage of suggestions as to how he should spend the money.
He is indicating a willingness to offer further support for business and to make amends for past misjudgments. He will offer extended guarantees to oil and gas companies on decommissioning of rigs, more of an olive branch than a reversal of last year’s hike in corporation tax which was blamed for an 18 per cent fall in North Sea oil output.
There is an expectation of more tax relief for businesses, even a headline-grabbing reduction in corporation tax to 20p; perhaps a cut in employers’ national insurance, the so-called tax on jobs.
Cutting corporation tax would risk pitching the Westminster government into a fight with the SNP, which is proposing a more competitive rate of its own and therefore would prefer Osborne to go further and hand over control of corporation tax to Holyrood.
A reduction in employers’ National Insurance contributions would be a huge boost to growing firms and help tackle the unemployment crisis. Employers’ NIC currently raises £60bn a year, so is also critical to the Treasury’s finances. Therefore the more likely options would be either a targeted or temporary cut. Targeting to help the young jobless may be too complicated and unfair. A temporary cut would seem more appropriate.
There will, of course, be counter-measures to claw back any of these giveaways. A tax avoidance clampdown is already under way, with 30 new taskforces announced last month. Expect it to be ramped up significantly.
More uncertainty as Sants quits
THE resignation of Hector Sants as head of Britain’s top financial services regulator caught the City and government by surprise and has disrupted plans for the successor regime.
Sants had already quit as chief executive of the Financial Services Authority two years ago over the plan to replace it with two supervisory agencies. But he was persuaded to stay on and was appointed head of one of those agencies, the Prudential Regulatory Authority, which will take on overseeing the banks.
Sants’ departure follows that of Margaret Cole, head of conduct, and John Fingleton, head of the Office of Fair Trading. The list of vacancies will also soon include that of Governor of the Bank of England.
It is fair to say Sants divided opinion, particularly among MPs who saw him as tarnished by the banking crisis and therefore unsuitable to head the successor agency to the FSA. The FSA came in for sharp criticism in 2010, when it published a 298-word summary of its inquiry into Royal Bank of Scotland and was forced subsequently to publish a full report.
His supporters more kindly point to his beefing-up of staff and of creating a tougher culture of discipline. There have been more convictions for inside dealing.
The FSA was already suffering from uncertainty over the transition to a new regime. That has now been compounded by Sants’ decision.