The US unemployment rate has risen above 10% for the first time in 27 years, leaving the US in a state of despair.

President Barack Obama will hold a jobs summit on Thursday, focused on job creation.

Although he has included business leaders amongst the 130 experts attending the summit in Washington, Republicans in Congress will opposed to any major spending plans.

President George W Bush has already frustrated them by spending billions on bailing out the banks and car makers.

The “big government” image and creating big financial defecits to be paid for by future generations are unpopular in Washington.

Economy.com’s Mark Zandi believes deficits are a major worry, but we can’t afford to be concerned about it now.

“That’s a problem not for 2009, not for 2010. That’s a problem for 2011, 2012 and beyond,” he says.

“We have to make sure that we don’t go back into a recession, because if we go back into recession, the cost to taxpayers will be even greater.”

“The deficits will be measurably larger, so I think it’s important to spend more money now.”

According to Mr Zandi, government spending needs to be aimed at assisting local government offices, as with tax funding falling, many employees are at risk of losing their jobs.

President Obama is on the look out for new ways to combat unemployment.

Unemployment benefits usually run out after six months in the US, but have been extended because of the highest unemployment rates.

Mr Zandi believes continuing with providing benefits to the unemployed as essential to maintaining demand, as those with no money make no purchases.

That situation could develop into a ‘catch-22’, downward spiral, as consumers that don’t consume, results in businesses cutting their workforce, causing more unemployed with no money to spend.

Another area where Mr Zandi feels the government can make a unique contribution is providing credit to small and medium-sized businesses.

Banks are still cautious over lending after the credit crisis, but have always given capital to start-up companies to help them expand, and these new businesses usually provide America with the majority of new employment.

Mr Zandi believes that “it’s clear that even when the economy gets back on its feet, we’re going to have very high unemployment in many parts of the country for a long time to come.

“One reason is that the people out of work don’t have the skills and education necessary to be employed in the jobs of the future.”

The US economy saw its first growth in over a year, rising to an annual rate of 3.5% between July and September.

Experts believe that a major spending plan by the US government which featured a scrappage scheme to encourage the car sales market has been the main cause of the upturn.

Some economists believe that there could be more setbacks lurking ahead, despite the official statistics showing that the recession is over.

A spokesman at the White House announced that recent economic progression was “a welcome milestone” but it would take more time for a full recovery to be recognised.

The US economy had risen 0.9% in relation to the previous three months, whereas the UK economy remained in recession, unexpectedly dropping 0.4%.

Hugh Pym, the chief economics correspondent for the BBC, revealed that the growth rate of 3.5% was greater than the 3.3% predicted by most experts.

He continued:”The sheer scale of the stimulus in the US has made a big difference, it was much bigger in percentage terms than that in the UK.”

“That the US, the powerhouse of the world economy is growing once again, is good news for the global economy has a whole.”

The last time the US economy grew was in the second quarter of 2008, by an annual rate of 2,4%.

The National Bureau of Economic Research will reveal the full extent of the US economic climb from recession when it analyses all the factors.

Some factors were significantly responsible for helping US economy during the third quarter, according to the Commerce Department.

The spending on durable manufactured products rocketed up at an annual rate of 22.3% which was the highest quarterly figure since 2001 and was spearheaded by the ‘Cash for Clunkers’ scheme helping new car sales.

Consumer spending increased on housing products by 23.4%, the greatest quarterly surge in 23 years, and came as a result of an improving housing market.

The big increase is considered by many to be due to the government’s $8,000 tax credit provided to first-time house buyers.

Government spending increased by 7.9% as stimulus spending spread and exports saw their biggest rise since 1996, rising by 21.4%.

Brian Bethune, an economist for HIS Global Insight stated that “it’s good to have the economy growing again.”

“But we don’t think that rate of growth is sustainable because it is distorted by all the government stimulus.”

“The challenge here is to get organic growth - growth that isn’t helped by fiscal steroids.”

However, unemployment is at a rate of 9.8% and a sharp fall came in September in the car sales industry as a result of the popular car scrappage scheme coming to an end in August.

Dean Baker, co-director of the Centre of Economic Policy Research believes that “you can say that the recession is over, but it sure won’t feel like that.”

“There is a lot of downward momentum that isn’t going to go.”

Plans to split British bank Northen Rock in two which would allow for its partial sale has been granted by the European Union.

The divide would result in two separate banks forming and are already being described as the “good” and “bad” banks.

The “good” bank would offer new lending, retain some of the existing mortgages and hold its savers’ money.

The “bad” bank would be used to repay the existing government loans and hold the remaining loans.

 Decisions made by the EU to accept the move are seen by Northern Rock as “an important and positive step.”

Changes to the existing setup will be made towards the end of the year.

The EU revealed that the good portion of the bank would be expected to grow and then be sold to third party, with the bad bank allowing its assets to dissolve then becoming liquidated.

The good bank may be sold prior to the general election next year with potential buyers being speculated already, with Virgin and National Australia Bank, owner of Clydesdale and Yorkshire Bank, among the interested parties.

EU Competition Commissioner, Neelie Kroes, believes that the move would make the bank a good long-term option, revealing that “this decision demonstrates once again that the EU’s state aid rules provide an appropriate framework to allow state support for a sustainable restructuring of banks without giving individual banks an unfair competitive advantage.”

Whilst Jonathan Todd, European Commission spokesman, said caps would need to be applied for the duration that the good bank remains owned by the public.

Some of the caps include a balance sheet reduced to a quarter of its size prior to the crisis, not being the market leader for loan interest rates, a cap set to limit its lending to one-third of Northern Rock’s 2008 levels and also a cap on retail deposits to be slightly lower than the pre-crisis level.

An investigation was engaged by the EU into Northern Rock in April 2008, two months after its nationalisation.

The results from the investigation showed that the UK government was kept at a “necessary minimum”.

By 30 June, the bank had paid back approximately half the taxpayers’ £26.9bn loan and will gain a further £8bn from the government during the end of year restructuring.

The EU stated that the restructuring would reduce its market share to below half of its pre-crisis level and “correct the excessive expansion of Northern Rock pre-crisis.”

Northern Rock released a statement, saying “this approval is an essential requirement of the planned legal and capital restructure, which is central to the business plan for Northern Rock.”

“The restructure will strengthen the capital and liquidity position of Northern Rock significantly, and offers value for money to taxpayers” and it would be “business as usual” for its customers.

According to official figures, the UK experienced an unexpected contraction of 0.4% for the third quarter, showing that the UK is still stuck in the recession.

This quarterly contraction is the sixth consecutive contraction, the worst run of figures that UK gross domestic product (GDP) has experienced since records began 54 years ago.

The GDP of a country represents the value of goods and services produced by a country. The figures released may be altered at a later date, as this is just a first estimate.

The Office for National Statistics (ONS), had been expected to show quarterly growth of 0.2%. However, no growth in retail sales for September and a 2.5% fall in industrial output for August had dented people’s positive expectations.

Experts have revealed that one of the main causes of the contraction was an unexpected drop in the services sector, with distribution, catering and hotels generating some of the worst figures.

Nearby countries France and Germany exited the recession earlier this year, and it is generally considered that the UK’s reliance upon the services sector, and more specifically, the finances sector being the main reason.

The UK economy has now experienced a 5.9% contraction since its high point prior to the recession.

The Bank of England is set to re-think its quantitative easing plan after seeing such a poor result in GDP figures. Quantitative easing involves the Bank of England printing money to buy bonds from companies and banks in an effort to encourage positive activity in the economy.

HSBC’s Bronwyn Curtis spoke with the BBC, revealing that “back in August we had a worse-than-expected second-quarter GDP number and that is the reason that the Bank of England extended the quantitative easing programme,”

ING’s James Knightly felt that the data was “awful with no positive news” and “clearly suggests that the likelihood of an expansion in quantitative easing by £50bn or so over the next quarter is rising, although [it] is not a foregone conclusion.”

It is considered by many experts to be disturbing that measures taken by the government and the Bank of England have failed to make a positive impact. However, David Kern, the chief economist with the British Chamers of Commerce believes that “continued intervention - including help for businesses to access finance, and incentives to promote investment - is still needed.”

“Above all else, business confidence must be nurtured, to ensure that recovery is not further delayed.”

Alistair Darling has announced that the government must borrow its way to recovery and believes that it’s the best avenue for the UK economy in the long run.

The Chancellor of the Exchequer confessed that further national borrowing “may feel counter-intuitive,” but “will mean the bills we face as a country are lower” in the long run.

However, many believe that the levels of government debt are already too high, with cuts in public spending and tax rises required. The government has already raised borrowing during the recession by high amounts.

Following Mr Darling’s speech, a question-and-answer session was held, with the chancellor finding agreement with Mervyn King, the Bank of England Governor, stating that there were “no simple answers” when it came to the reform of big banks.

According to Mervyn King, their core business may need to be divided into other practices to prevent them from becoming so big that they aren’t allowed to fail.

Mr Darling was concerned that “we cannot have a regulatory regime that excludes the possibility of failure.”

He went on to state that the banking sector needed more competition, and when the government came to selling its bank stakes that were bought during the financial crisis, it would be hoping to develop greater competition.

Many are calling for a reduction to the borrowing and spending that has caused so much debt, but Mr Darling believes that withdrawing government support would be “wrong and dangerous,” and the country would have to make a big decision.

At a speech in London, Mr Darling declared that “we can resign ourselves to a decade of austerity, low growth and low employment, or we can embrace change, turn it to our advantage and seize the huge opportunities a global recovery will bring.”

He continued by warning that withdrawing government support to the economy “would put the recovery at risk and abandon people facing unemployment.”

In a bid to encourage demand during the recession, the government has pushed billions of pounds into the economy through its £175bn quantitative easing plan, cut the VAT rate and helping ailing banks.

According to Mr Darling, a great deal of work was still required to steer the country out of the recession, including three big steps.

“First, we must support the economy until we’re sure the recession is over. Some are tempted to think the crisis is over. It’s not. Banks all over the world are still dependent on government support.”

The second step would involve raising taxes to regain financial strength and taking “tough choices on public spending for the years ahead”.

He added, that it “will mean cutting costs, cutting waste and cutting lower priority budgets, while continuing to invest in our priorities and our future.”

His third step would involve a government plan of growth.

“We need growth, because when we grow, the economy becomes bigger, we all become richer as a country, and it gets easier to pay back debt.”

Late Payments To Be Charged

HM Revenue and Customs has confirmed that bereaved families will have to pay 3% interest on late payments of inheritance tax from September.

Payments are meant to be made within six months of a death, but in March, interest on late payments, which roughly follows Bank of England base rates, fell to zero.

The Treasury, on the other hand, has set the interest rate it pays when tax is overpaid to just 0.5% in comparison.

The Taxpayers Alliance said that such a move was “desperate” and “unfair”.

Inheritance tax is imposed on estates including properties, possessions, money and investments that have a total worth of over £325,000. Any estate valued to be worth more than this amount is taxed at 40%.

Making Things Fairer?

HM Revenue and Customs released a statement which says: “Interest is not a penalty but compensation for tax paid late.

“We are streamlining the rates charged and paid for interest to simplify and make things fairer for customers.

“This has been subject to extensive consultation over the last 18 months and has been largely welcomed by customer groups and their representatives.

“The alignment of rates that will take place in September will mean that all tax paid late is subject to interest at the same rate, so ensuring all taxpayers are treated equally.

“And, in the interest of fairness we will also be introducing a repayment interest floor, to ensure that any taxpayer overpaying tax will receive interest.”

Double Standards?

The interest that HM Revenue and Customs pay will always be one percent below the Bank interest rate, but will never stand at anything lower than 0.5%.

Since March, both the late inheritance tax payments interest, and interest paid by Revenue and Customs stood at zero, below the Bank of England interest rate of 0.5%.

Political director of the Taxpayers’ Alliance, Susie Squire believes the public will be extremely angry with the changes. She also describes the alterations as “unjustifiable.”

“It’s a desperate move and a seriously retrograde step for the government. It’s basically one rule for them and another for everyone else,” she explains.

She also says she believes the decision to be more about “political point-scoring rather than raising any significant revenue,” and that it was “feeding the government’s addiction to debt, tax and spend.”

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HM Revenue & Customs has had to withdraw a new leaflet which explains how tax credit works because of an error in its information.

The leaflet – entitled “Why do overpayments happen?” was published on HM Revenue & Custom’s website last week.

It mentions a tax credit claimant who failed to report that their income had risen from £9,000 to £20,000 per year would be paid too much tax credit. However, it does not mention that income can rise by £25.000 before any repayments are due.

A spokeswoman for the Revenue said that: “We agreed that the example used on page 2 of this leaflet concerning income is misleading and we have arranged for this leaflet to be removed from our website.

“We aim to have a revised version of the leaflet available for customers soon.”

The change in tax credit so that you had to be earning an extra £25,000 per year before it affects your annual tax credit assessment is known as the income disregard, and came about in 2006 when it was raised from £2,500.

Is the System Too Complicated?

Such a huge and sudden rise in the threshold meant that in its early years there was chaos surrounding the tax credit system and millions were overpaid and then had to be sent demands for repayments of thousands of pounds.

Some cases were caused by HMRC staff calculating tax credit incorrectly even with right original information from claimants, and other cases were caused by unawareness of claimants, or informing the Revenue too late leading to an overpayment.

Between 2003 and 2007, these overpayments totalled £7.3 billion and are currently still totalling around £1 billion a year according to a report by the MPs on the Public Accounts Committee.

Robin Williamson from the Low Incomes Tax Reform Group (LITGR) said the following: “So often we see cases of advice from the HMRC helpline that show that not even the people who are supposed to administer the system can fully understand it.”

According to the HMRC spokeswoman, the leaflet was only up for two days before the error was spotted and it was taken down. Around 250 paper copies had also been printed and sent out to HMRC offices which have also been withdrawn.

She said: “Although the example could have been better the underlying message still holds – keep HMRC up to date with charges in circumstances and changes of income to help avoid an overpayment.”

Leaflets will be re-published in mid-June mentioning income regard.

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The Government has launched a new campaign in order to retrieve millions of pounds of tax from people who own offshore accounts.

HM Revenue and Customs (HMRC) announced the new ‘offshore disclosure opportunity’ in Wednesday’s annual Budget

The scheme will run until March next year and is aimed to give people a chance to confess that they owe tax on their offshore bank account interest.

The HMRC ran this campaign back in 2007, targeting people with offshore accounts in the UK’s high street bank branches and were able to raise around £450 million from 45,000 people because of it.

Last year they ran a second campaign which targeted around 300 smaller banks and building societies that also have offshore branches.

The searches by the Revenue were not possible until a recent legal breakthrough that now means that banks must reveal the names of any UK citizens that hold accounts abroad. And since this change was made they have been working hard to make sure all those tax dodgers with overseas accounts are brought to a stop.

New Powers A Result of the G20 Summit?

They have also been in the process of investigating around about 300 rich UK citizens who have failed to pay tax on their Liechtenstein bank accounts. It is estimated that they owe around £300 million in tax on these accounts that have around £1 billion in them.

The HMRC have also recently signed agreements with the British Isles such as Guernsey, Jersey, the Isle of Man and the British Virgin Islands in order to achieve the same effects on people keeping accounts in these places.

From the accountants Saffery Chanpness, Ronnie Ludwig has said: “This is in line with the coordinated international approach being taken towards such bank accounts as outlined at the recent G20 summit meeting.

“The knowledge that they are much more likely to be caught than was ever the case before should provoke some more meaningful results from the latest disclosure opportunity.”

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There is to be an average rise of 3% on council tax for those in Band D areas of England, the lowest rise in 15 years, according to the Department for Communities and Local Government.

On an average home in the Band D area tax will increase from £1,373 to £ 1,414 for this tax year.

The general average rise per home will be 2.6%, taking the typical household council tax up from £1,145, to £1,175 from April 2009 to April 2010.

However, the LGA (Local Government Association), is begging the government not to put a cap on council tax this year.

Its minister John Healey said: “Most councils across the country are tightening their belts, which is exactly what the public wants to see.

“With a tough economic year ahead, councils will need to do even more to control costs and I remain ready to be tough with capping powers to protect council taxpayers from excessive increases.”

The LGA’s chairperson – Margaret Eaton has added that: “many councils revised down council tax rises this year to minimise household costs for residents.

“Given that town halls have made such efforts to keep council tax down this year, we would not expect the government to cap any councils.”

‘Insult to Injury’

However, the Conservative party believe that there should be no rise at all.

Carolin Spelman is a local government council secretary, and says that: “at a time when millions of workers are facing pay freezes or unemployment this year, it adds insult to injury to drive up bills by a further £41 a year, on top of previous years’ rises.

“Labour’s refusal to follow the example of Scotland and freeze council tax bills in England is unfair on English taxpayers, who yet again have received a raw deal.”

The government does plan to cap the council tax increase in the counties of Derbyshire and Surrey though. If Surrey follows through on this plan, it will be the second successive year it has decided to do this, the first time in 12 years.

These councils are examples of where council tax is shared between several bodies, including the council, police and fire services.

Therefore, the police authorities are allowed to set their own council tax rises as long as they don’t exceed a certain threshold, set out by ministers. Therefore, the local ministers can put a cap on the demands.

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Research has shown that UK residents are saving billions in tax by having money in offshore tax havens.

The Channel Islands and the Isle of Mann are among the most popular spots UK residents choose to store their savings according to the research compiled by the TUC.

According to EU rules, UK residents are allowed to declare interest earned overseas or have 15% held back from interest in the chosen offshore country where the account is held.

Although this may not be an issue for much longer, as MPs are asking for a review into the use of such accounts.

According to EU rules, three quarters of the 15% tax on interest earned in offshore accounts is eventually paid back to the UK government. But this means that only 11.25% instead of 40% is being given back according to the TUC.

£4 billion – a “serious underestimate”

By extrapolating data from an answer to a parliamentary question, £4 billion was estimated to be stored tax-free in offshore accounts.

During the last three years, £319 million of tax, of a total income of £1.1 billion has been lost to their holders.

The TUC have warned however, that this is a “serious underestimate” and has called for the EU Savings Tax Directive to be reformed, allowing tax benefit on overseas funds.

TUC General Secretary Brendan Barber said: “The mechanisms of tax avoidance are always hard to understand, but this is a very simple story. If the super-rich held their money and assets in the UK they would contribute at least £4 billion extra.

“This would be enough for the government to meet its target to halve child poverty by 2010. It would also mean that instead of being squirreled away in tax havens, it was being spent in the real economy here helping us fight recession.

“With the tax take falling because of the recession, there can be no better time to get tough with the super-rich, so many of whom did so much to throw the world into recession.”

Government Going Easy on Offshore Accounts?

Related to this, it has also been reported that opposition MPs are planning on calling ministers to disclose how much offshore subsidiaries of taxpayer-funded banks were costing in lost revenue.

For example, Lloyds has over 125 offshore companies and RBS has 238.

However, it has not been suggested that any laws have been broken by tax sheltering, but George Osborne, shadow chancellor, told the newspaper that a “lack of coherent strategy” was being shown my little governmental action against offshore firms owned by banks that have recently been rescued with taxpayers money.

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Should offshore accounts be taxed on par with UK held accounts? Is the government losing billions because it is still overlooking these accounts? Leave your views here.