22nd November 2008
News Category: Economics
In light of continuing doom and gloom economic news, there is intense speculation regarding the contents of the imminent pre-budget report (PBR). The number of unemployed people in the UK stood at 1.82 million at the end of September, and is forecast to rise to over 2 million people by the end of the year. The impact of the global banking crisis has resulted in tens of thousands of financial services jobs being lost in recent months, as executives reduce overheads to restore investor confidence.
These government unemployment statistics do not take into account any redundancies from the small and medium-sized enterprises (SME) or private equity capital sector companies. The small business services sector alone employs 60% of the uk workforce. It is likely that unemployment statistics will be worse than the official 1.82 million. The scale of the recession will not become clear until the number of people claiming jobseeker's allowance and other government benefits, becomes officially registered and made public. With this bleak economic background, on Monday the Chancellor will deliver his pre-budget report. He is likely to announce more Government initiatives to help to reduce the impact of the recession on consumer's and small businesses. Based on recent news reports/leaks and hints in recent interviews, the main measures are likely to be as follows:-
Help for Taxpayers - using fiscal policy the Chancellor may announce intentions to change personal allowances, benefits rates and national insurance rates for the next tax year. In particular, an extension of the measures to compensate those affected by the scrapping of the 10p tax band, which left millions worse off.
Help for Home Owners - firstly, the scheme that gives mortgage holders three months breathing space to negotiate any late mortgage payments, may be extended to include a larger number of vulnerable families. The scheme is designed to reduce the number of repossessions which has risen sharply in recent months. The scheme set up last year is designed to give three months grace of missing mortgage payments for lenders are able to issue a repossession order through the courts system. There are currently 68,000 borrowers with mortgage arrears and this is predicted to rise to over 200,000 before the end of Christmas 2008. The Council of Mortgage Lenders believes repossessions are set to rise 70% this year alone. The rise in repossessions is putting increasing pressure on local authorities to provide publicly funded accommodation. Secondly, the Government scheme that allows council home owners to sell an equity proportion of the home back to their council, may be extended. Thirdly, the nationalised Northern Rock, (which has been criticised for its aggressive repossession behaviour in the last six months), may be forced to provide a more sympathetic approach to struggling homeowners. Fourthly, the courts may be instructed to allow more time for defaulting homeowners to seek alternative debt help before issuing a repossession order.
Help for Small Businesses - firstly, a provision of loan guarantees to assist struggling small businesses may be offered, to counter the fall in high street bank small business loans, as well as increasing bank and overdraft charges. Secondly, business groups will also be interested in whether Foreign Profits reform will proceed in 2009. There may be a new tax exemption for dividends from overseas companies paid to UK companies. Thirdly, it is also likely that the Government will list all contracts on a new website to help small businesses bid for public sector contracts over £20,000. Its aim is to recue procurement bureaucracy and give small firms delivering small business services, an opportunity to bid against larger more powerful and connected competitors. Fourthly, a reduction in VAT from 17.5% to 15% may be applied to overseas goods, bringing down the costs of goods and services for consumers.
The Conservatives have stated there should also be a 3 month breathing space for payment of VAT, to help the cash-flow of small businesses. So far the Government has shown little interest for such an idea. Lastly, the main high street banks will be threatened with Nationalisation if they don't start lending to cash starved small businesses. The Government has reacted angrily at the refusal of Banks to pass on the historic injection of capital, or pass on recently reduced reasonable interest rates, onto the UK's 4.7 million existing small firms and new business start-ups (trying to raise business finance in the company formation stage). The Federation of Small Businesses is calling for a new £1bn 'survival fund' to replace the Small Firms Loan Guarantee scheme. The FSB wants the fund allocated to Regional Development Agencies to give companies (with a turnover of under £5.6m, employing less than 250) a loan guarantee covering 75% of the loan.