The capital gains tax paid this year will reflect transactions at the old rate prior to the hike from this government. The OBR forecasts £3.2 billion in receipts. For 2012-13, when the new higher rate system will be bedded down, they forecast just £2.9 billion, a fall of a tenth. They seem to agree with those of us who have been arguing that you will raise less if you hike the rate too much.
The OBR also forecasts a weak year for Stamp duty land tax in 2011-12, another tax which has been increased sharply in recent years. They think revenue will fall from £6 billion to £ 5.8 billion. The Treasury needs to do more work on how lower rates of tax can promote more growth and higher revenues.
The Budget has changed some of the numbers of the five year plan. Spending goes up a bit more – £93.7 billion extra in Year 5 compared with the last Labour year for total current spending, and £74.9 billion extra total spending including capital, where there are cuts.
Total borrowing will be £165.5 billion in 2010-11, and £167.4 billion in 2011-12. £261.6 billion of this is additional borrowing for extra spending. Much of the rest is refinancing of maturing debt. There will be no shortage of government bonds around for several years. The Chancellor’s budget adds £44 billion more to the national debt by 2014-15, taking the total increase in debt over the five years of the strategy to £485 billion.
According to the OBR interest rates will rise to 4% by 2014-15. Gilt values will fall as yields rise from an average 3.6% to 4.9% on their view.
All those arguing that the Chancellor is cutting the deficit too quickly, and those who mistakenly think he will be “paying the debt down” should read these numbers. We are deep in debt, and will adding to the debt substantially. In order to keep interest rates down to realistic levels it is important we are seen to be curbing the deficit, slowing the rate of growth of the total debt.
Our UK national house is fully mortgaged, but we are taking out a second mortgage to pay the bills and keep up the spending. If we sought an even larger second mortgage the international bank managers might well call time on us as they have on Greece, Ireland and Portugal.
The main change in the budget is the increase in public spending which was not flagged in the speech. The figures for extra spending are:
2011-12 increase of £10.6 billion
2012-13 increase of £9.2 billion
2013-14 increase of £8.1 billion
2014-15 increase of £6.1 billion