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Here’s all you really need to know about the Pre-Budget Report.
Gordon Brown plans to take another £2bn a year out of your pocket, on top of all the rest he’s taken over the past 10 years. He’s then going to squander this money on even more grandiose and ineffectual plans to improve public services, rather than paying down the UK’s already gargantuan debts.
Some day, probably when he’s Prime Minister and seeking re-election, all of this profligacy is going to come back and bite him on the backside. Unfortunately, the rest of us won’t be able to laugh at this poetic justice, because we’ll be living in fear for our jobs as the economy collapses around our ears.
So that’s all you need to know. But if you really need the gory details, read on…
Yesterday’s Pre-Budget Report was great news for anyone who doesn’t drive or fly, plans to be pregnant in about two years’ time, and is hoping to buy a zero-carbon house. For the rest of us, it was the usual story of take, take, take and waste, waste, waste.
Fuel duty rose 1.25p a litre (on all forms of fuel) from last night, while tax on air flights will double from February; the Chancellor always wants his cut upfront, you’ll notice.
By contrast, all of his apparent giveaways are scheduled so far in the future that he can decide to cancel them at any point and most people won’t even remember he ever promised them.
For example, his plan to make pregnant women eligible for child benefit from the 29th week doesn’t take effect until April 2009. And anyone who hopes to buy a zero-carbon house – which will now be free of stamp duty for a limited time – might be waiting even longer. There aren’t any in the UK at the moment, and according to The Times, ‘the handful of carbon-neutral developments in existence have run into teething problems.’
“Brown goes green” was meant to be one of the takeaway messages from this PBR. Tripe. As the airline industry complained, the flight tax (set to raise £1bn next year) is a revenue-raising measure, pure and simple. If you really want people to fly less, how about using the money raised on air tax to cut rail fares – or even invest in building a high-speed North-South rail link?
But Mr Brown doesn’t care about the environment. All he sees is an easy tax target, given validity by the scaremongering Stern Report, and doubtless supported by the type of people who think that the masses shouldn’t be allowed to fly anyway. There can be few other taxes, entirely unlinked to ability to pay, which could go up by 100% overnight without some form of riot – but the British public seems to have accepted that we all need to be punished for daring to like cheap holidays. Well, at least it will hasten the bursting of the European property bubble – without cheap flights, who will rent out all those gites, or buy all those ‘bargain’ Eastern European shacks?
So what about the spending side of things? Well, Mr Brown now has education in his sights. He’s squandered massive amounts of public money on the NHS to little effect, so now it’s the turn of the schools. The main impact of his health spending splurge was to end up paying medical staff more for doing less; so unsurprisingly, the National Union of Teachers was in raptures when they realised it was their turn for the Brown treatment.
As Anatole Kaletsky says in The Times: “Mr Brown’s main proposal is to spend more money on school buildings, but without any mention of what will be taught in these buildings or how”.
But that’s not the point, Anatole. Just look at how much he’s spending – £36bn! Never mind the quality – feel the width of that wodge!
You only have to look at Mr Brown’s ambitions for education to understand. He wants the UK to become “the most educated country in the world.” Not the “best educated” – “the most”. He’ll throw great lumps of education at you until it’s coming out of your ears – never mind if any of it actually sticks or is worth learning.
So by the time you leave the state school system, you might be illiterate, innumerate, and barely socialised, but it’ll have cost a lot of money to get you that way – perhaps even as much as it costs a private school to turn out kids who can read, write and sometimes even count.
Mind you, heaven forbid that we teach people to add up – they might finally work out what a rip-off the past ten years have been.
Anyway – one thing that wasn’t mentioned in the Pre-Budget Report was inheritance tax (IHT). Even if you’re not worried about it now, there’s a good chance that one day you’ll have to – particularly if Mr Brown’s policies continue beyond his Chancellorship. So be sure to tune into MoneyWeek’s website at 1pm today (Thursday 7th December), when we’ll be hosting a webchat with Anne Young, tax expert at Scottish Widows, who’ll be answering your questions on IHT. We know a lot of you are very interested in this topic, so please go to the Webchat page (/file/22407/iht-web-chat.html) and submit your questions for Anne, who will try and answer as many as she can.
Turning to the wider markets…
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The FTSE 100 closed 3 points higher yesterday, at 6,090, following a volatile session. A subdued reaction to the Chancellor’s pre-budget report and a poor start on Wall Street were offset by strong results from Royal Bank of Scotland and strength in the banking sector as a whole. For a full market report, see: London market close.
Across the Channel, shares tracked Wall Street lower. The Paris CAC-40 ended the day 9 points lower, at 5,350, whilst the Frankurt DAX-30 was just 3 points lower, at 6,369.
On Wall Street, the major indices all closed lower as stocks took a break from recent advances. Drugs firm Merck and General Motors both weighed on the Dow Jones which closed 22 points lower, at 12,309. The S&P 500 closed 2 points lower, at 1,412. And the tech-heavy Nasdaq ended the day at 2,445, a 6-point fall.
In Asia, the weaker Yen gave exporters a boost and sent the Nikkei to a close of 16,473, a 102-point gain.
Crude oil was 18c higher this morning, last trading at $62.37, whilst Brent spot was trading at $63.74 in London.
Spot gold sank to a two-week low of $626.70 today as the dollar strengthened. Silver fell to a one-week low of $13.42.
And in London this morning, Gallaher shares jumped over 20% higher after the cigarette maker revealed in a statement late last night that it had received a takeover approach. The bid is believed to have come from Japan Tobacco Inc. Imperial Tobacco and British American Tobacco were also higher this morning.
And our two recommended articles for today…
Why we need investment bubbles
– The world of investment is changing and Justice Litle has come up with a mental model to describe it: punctutated bubbleibrium. Here he explains what it is – and why bubbles are sometimes necessary to displace the status quo: Why we need investment bubbles
How the US housing slump affects metals
– Recent dollar weakness may have boosted metals prices but, if the US economy continues to weaken, the outlook for base metals will be less rosy. And the key to the US economy is the housing market. To find out what to expect from the housing market, base metals prices and the economy as a whole, read: How the US housing slump affects base metals