It is predicted that council tax will rise by 3% in England this year – higher than inflation rises, but also lower than any rise in the last ten years.

However, ministers are saying that the rise is excessive, and that costs could be cut elsewhere in order to protect core services.

Councils predict that their overall incomes will fall by £2.5 billion caused by lower income from investments, services and selling land during the falling house prices.

Official Consumer Price Indexes have measured that inflation currently stands at 3%, but is expected to fall. The Retail Price Index, another method of measuring inflation, has already fallen 0.1%.

Local authorities across the country are having to revise their budgets in order to reduce interest on investments, lowering income they expected t o receive from things like car parking and leisure centres. On top of this, demand for housing benefits is rising, putting more pressure on council finances.

If council tax does rise by 3%, it is expected that the average annual bill for this financial year rising to £1,414.

‘No excuse’

Margaret Eaton, chairman of the LGA has said: “Councils are responding to the fact that people are feeling the pinch and are revising down this year’s council tax rises.

“Councils understand people are suffering and they are working flat out to keep council tax down, to keep local businesses afloat and help people deal with the impact of the recession.”

John Healey, a Local Government Minister, also had this to say about the budgetary stability to plan ahead: “Next year, they will receive a 4.2% increase in grants, with more funding strings removed so that money can be used as they see fit to meet local needs and priorities.

“So there is no excuse for excessive council tax rises or service cuts, and I have made clear that we will take capping action where necessary to protect council taxpayers.”

On top of the council tax rise, state pension is also set to increase from next April, but Age Concern’s Gordon Lishman has said pensioners will still struggle because council tax worked out based on their homes, not their income.

He said: “Although this year’s state pension uprating might seem generous, many older people are still dealing with the fall-out of last year’s inflation rise and will be struggling to make ends meet.”

Call for Tax Freeze

The Conservative party are claiming that they would give consumers a two-year freeze on council tax by cutting spending on government consultants and advertising. 

Caroline Spelman, shadow local government secretary has agreed with this, saying taxpayers were “already feeling the pain of council tax having doubled under Labour.

“Now council tax bills are to rise by a further £41 this April, at a time when people are losing their jobs or being hit with pay freezes.

“By contrast, residents in Scotland will benefit from another council tax freeze this year.”

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Mortgage rationing is set to become more of a problem in 2009 if the government don’t intervene, according to a lending group.

Director General of the Council of Mortgage Lenders (CML), Michael Coogan, has said there are now fewer lenders with less money. He also suggested that if lending levels in 2009 go in a similar way to 2008, they could be a challenge. And added that smaller companies may have to spend a third of their profits covering the bail-out of bigger banks.

Mr Coogan was speaking at the CML’s annual conference on Tuesday and painted a rather dull picture for people intending to get onto the property ladder in the near future. He said that: “Consumer borrowing will simply not return to the levels seen in 2007, even if funds increased and a wide variety of lenders were to become active in the mortgage market again.

“In fact, unless the government takes further targeted action to help market participants, we will see a worsening of the picture next year compared to this.

A good outcome next year in my view would be if we had lending at levels seen in 2008, but bearing in mind we will be in a recession…this would be a real challenge.”

Sir James Crosby also voiced similar views earlier this year, when in a recent report to the chancellor, he suggested that net new mortgage lending would pads the low of £15 billion in 1995 and fall below zero.

House prices in Britain have fallen by 10% to 15% this year so far. Mortgage approval is also down 74% compared to last year, and it is expected that there will be further falls in prices.

Mr Coogan also claimed that building societies would make a loss this year. Other small financial businesses are seeing their profits hindered by “unintended consequences” of moves to protect customers with failed banks.

Though the government may have made changes in order to avoid tax-payers having to cover compensation paid on those who have lost money with Icelandic banks, in actual fact, it will be financial institutions of all sizes that have to cover the cost via the annual financial services compensation scheme. This has cost some of the smaller institutions up to 30% of their annual profits.

Mr Coogan has however backed the mortgage lenders decision to delay the process of repossessions for borrowers in financial troubles. But he has also asked for more support from the government. He has proposed a “backstop scheme” in order to sell property to their lender which they could rent back. This would stop the need to go to court, as well as underpinning property prices, and allow people to stay in their own homes, therefore supporting the local community.

Prior to Thursday’s decision on interest rates, he also criticised the idea as “short-sighted and counterproductive”, claiming that this was pushing down interest rates offered to savers.

Jon Pain of the Financial Services Authority has warned lenders to keep to contractual rules when passing on cuts to customers, saying that any floor on tracker mortgages must be made clear in an initial mortgage contract.

At the same conference, Liberal Democrat Treasury spokesman, Vince Cable also said that there should be no return on reckless mortgage lending, claiming that: “the industry should now be exploring new products to restore faith in mortgage lending.”

Chancellor Alastair Darling has revealed that while he may be planning on cutting taxes in his budget, the government will also be borrowing record amounts in order to reduce the effects of repression as much as possible.

According to his pre-Budget report, high income homes will also face more tax, and National Insurance contributions are also set to rise across the board, as part of his “exceptional” measures in order to reduce the effects of recession next year.

Alcohol, tobacco and duty prices are set to rise enough to offset the VAT cut from 17.5% to 15%.

Conservative Chancellor, George Osborne, has accused the Labour party of trying to bring Britain “to the verge of bankruptcy” as the plans detailed in the pre-Budget plan will double national debt, which is set to reach £118 billion next year.

He has accused the government of creating a “huge unexploded tax bomb timed to go off at the time of the next economic recovery.” And also that Mr Darling had offered “temporary tax giveaways paid for by a lifetime of tax rises on the British people,” and that the UK had been “mortgaged to bail out the mistakes of the past.”

Liberal Democrat treasury spokesman, Vince Cable has also said that the government’s plans would not be enough to boost consumer spending, and that they would do better to “put money directly in the pockets of low paid workers by cutting their income tax.”

Mr Darling has also reduced the predicted growth of the economy for next year from 2.75%, to between -0.75% and -1.25%, the biggest downward revision recorded.

On the other hand, he has said that the government will inject either £20 billion or 1% of GDP into the economy in order to get things moving again, leading to an increase in government borrowing.

There is also expected to be a cutback in government spending, with the rise predicted to be at 1.2%, lower than in recent years.

The 2.5% VAT cut will come into effect on Monday, just in time for the peak in the Christmas shopping period, and will aim to put £12.5 billion back into the pockets of consumers over the 13months during which it will last.

Also, on top of their £10 bonus, pensioners will receive a one-off payment of between £60 and £120 in January.

The increase in duty on alcohol, tobacco etc however, will be permanent.

In measures that aim to try and get back some of the VAT that the government will be losing, top rate tax will increase to 45% in 2011 for people earning over £150,000 per annum from April 2011, and all National Insurance contributions for both employees and employers will be raised by 0.5%.

The starting line for National Insurance and income tax line will be brought into comparison with each other so that anyone earning less than £20,000 per year will not pay more contributions.

In defence of borrowing rate being almost double for next year than 2008, the Chancellor has said that “in these extraordinary circumstances allowing borrowing to rise is the right choice for the country. Taken together these steps will ensure money flowing into the economy when it is needed most, but we can reduce borrowing when growth returns.”

Other measures include speeding up the introduction of planned rises in child benefits, along with measures that aim to help small businesses struggling due to the credit crunch.

He has also announced that drivers will face a more gradual introduction of new vehicle excise duty, at only a £5 increase per vehicle next year.

And, of course, there was mention of work on motorways, schools and repair to council houses by bringing forward £3 billion of state spending.

Also for home owners, a scheme that covers mortgage interest payments for those that have lost their jobs will cover up to £200,000 of mortgages.

The other major change in order to try to boost the economy is that this year’s £120 income tax personal allowance per year for basic rate tax payers will stay and be increased to £145.

Chancellor Alistair Darling has begun to outline this year’s pre-Budget report, which is expected to include details of tax cuts in order to help fight the current recession.

It is expected that tax will be cut from the current 17.5% to 15%, paid for by 45% tax rate on earnings over £150,000 and a large increase in borrowing.

In his speech, which he began by saying that Britain faced “exceptional” economic circumstances, and that he wants to take “fair and responsible” steps to protect and support businesses and people to help with the future problems our economy will face, the Chancellor also said that he wants to ensure that the slowdown will be as shallow and short as possible.

He added that the current financial issues were a global crisis, but the World Bank and other institutions are confident that the global economy would recover strongly and even double in size over the next couple of decades.

Mr Darling’s primary aim is to get consumer spending figures up again in order to save businesses from going under. However, in order to achieve this, he has to borrow a record amount in order to pay for it.

The Pre-Budget plan outline is expected to give an impression of how the money could be paid back in the future through a combination of slowing growth, government spending and tax increases.
 
If all goes as it is currently expected, this could be the biggest shake-up of Labour’s economic policy since the party came into power in 1997.

The top rate of 45% will not come into effect until after the next general election however, which means that Labour will not be breaking its 2005 manifesto commitment on raising income tax.

On the other hand, the cut in VAT is expected to come into effect in the next few days, in time for the beginning of the major Christmas shopping period.

The BBCs Political Editor, Nick Robinson, has said that it’s a “defining moment” in British Politics. This is due to the fact that Labour is practically tearing up its previous economic policy and that this will probably determine the outcome of the next general election.

“Extraordinary times call for extraordinary measures”, were the words of Prime Minister Gordon Brown as he tried to justify the planned changes. He also said that in order to stop Britain entering into a long lasting recession, the government had to inject money into our economy.

According to the Prime Minister: “To fail to act now would not only be a failure of economic policy but a failure of leadership. Doing too little too late would mean more damage and more deterioration.”

Conservative party leader, David Cameron, has also stated at the CBI conference, that he was “sceptical” of the new measures that Labour are planning on bringing in. He also says that he believes this could hold back further interest rate cuts and warns that temporary tax cuts now could lead to permanent tax rises at a later date.

He said: “They might be talking about tax giveaways but everybody knows that they’re throwing money at us now, to take away at a later date.”

He also claimed that his party would freeze council tax, allow companies six months to pay their VAT bills, cut the tax rate for small businesses and introduce tax breaks for job creation, along with other measures.

Vince Cable, treasury spokesman for the Liberal Democrats, said that tax cuts were needed but he has warned that the government will have to make clear how they are going to pay back the amount they are borrowing.

He said: “By itself an increased tax rate on those earning over £150,000 would only raise negligible amounts of additional revenue.”

HM Revenue and Customs will launch next year, a second campaign in order to get thousands of people to pay taxes on offshore bank accounts.

They will call this the “offshore disclosure facility” and it will target people with offshore accounts in around 300 banks and building societies across the globe.

HMRC’s first campaign last year, was aimed at customers of the main five big high street banks was a success as it raised £450 million from about 45,000 tax payers.

The HMRC have also announced that some tax dodgers it uncovered last year will face prosecution:
“the intention of the new facility will be to provide an opportunity for account holders to inform us of their own accord of any unpaid tax or duties and to settle their debts in a similar way to the original offshore disclosure facility,”

One of the ways the company have tried to encourage people to step forward of their own accord, is that the fines they will face will be limited this way than if they are caught out at a later date.

In theory, the Revenue can charge up to 100% of the unpaid tax. Last year however, the penalty was capped at 10% in order to try and encourage people to confess to tax dodging. This year, the rate is expected to be 20% to 30% of the unpaid tax.

Saffery Champness accounts person, Ronnie Ludwig, has said that this rate is not enough to get people to pay their taxes: “The previous deal was not sufficiently generous to encourage people to come forward, so I anticipate a smaller response this time.”

The Revenue will not reveal how many people it thinks has money hidden in offshore accounts, although, clearly if they are introducing this measure, they are expecting that perhaps tens of thousands of people do have these accounts.

Chas Roy-Chowdhury, from the Association of Chartered Certified Accountants (ACCA) has said: “The effectiveness of the last campaign seems to have been a bit patchy…there must be some high-value targets the Revenue want to come clean.”

Last year, HMRC flushed out a list of around 400,000 accounts it considered to be suspicious.  Revenue spokesman explained that: “many of the customers for whom HMRC received information had already paid any tax due on funds invested and had nothing to disclose.”

Of the 100,000 people whom the Revenue still considered to be suspicious, 45,000 then came forward and paid between them around £45 million. Around 50,000 others that the Revenue still consider to be suspicious are still being investigated and some will soon be prosecuted.

HMRC said they “made follow-up checks of the disclosures made and has started a programme of checks on those who did not take the opportunity to come forward. In the most serious cases, we are carrying out criminal investigations and we will bring some prosecutions before the courts in the New Year.”

They will write to the latest group of banks and building societies, asking them to reveal the names and addresses of all its UK residents that have offshore accounts, and then write to said residents asking them to pay their unpaid tax.

Some of the confessions to tax dodging last year, included someone who disclosed over £60,000 due to failure to declare income from her holiday home, someone who sold a property portfolio and placed funds in an offshore account and never declared them and faced a £1.7 million fine.

Also, a business man diverted profits of around £1.3 million into a Channel Islands bank account, a plumber who paid £10,000 from informal jobs into an offshore account, and a self-employed man who invested £50,000 inheritance lump sum offshore.

Prime Minister Gordon Brown has sparked talk of possible tax cuts by saying they could help support consumer spending. He also commented on the tax cuts that are planned in the US and Germany and said that countries must work together to tackle the global economic problems we are currently facing.

He has said that he is looking into “everything” that could possibly help the economy and would announce the details of the decisions made within days.

Conservative leader David Cameron has said he believes the Tories will announce “tax change to encourage businesses to take on workers”, and the Liberal Democrats have already admitted they would cut taxes for those that are paid less.

Gordon Brown has said that potential tax changes are a matter for the pre-Budget report, which is due out next week. But also said in a speech that “people are looking to governments for action” at the moment, drawing attention to the plans that Germany, the US and China have to help their economy, which mostly include tax cuts.

He said: “With Britain continuing to lead the debate, economic recovery will work better if we all work together…The benefits of any individual country’s fiscal action will be all the greater if this is part of a concerted and fairly distributed international response to maintain global demand.”

When asked about the possibility of tax cuts, Mr Brown replied that petrol duty had been frozen and people were already getting £120 back in their income tax after the government raised tax allowance following the 10p tax row.

“What I’m determined to do is get all countries around the world trying to get their economies moving again, and one way you can do that is by putting more money into the economy by tax cuts or public spending rises but that’s something we have got to look at in the next few weeks.” He told GMTV.

There have been reports that the Conservative party may propose National Insurance payments holiday for new workers in order to encourage employers to take on more staff, in their tax proposals.

Cameron has also warned against permanently damaging public finances, and is criticising the government because it had a large budget deficit before the recession even began. He has suggested that any new proposals should make clear where the money is coming from in the first place to stop the governments’ excessive borrowing.

On the other hand, spokesman for Mr Brown said that increasing borrowing is now the accepted view across the world, and that the government would have to look at all the issues relating to tax and spending.

Nick Clegg, Liberal Democrat leader, has said that they have been pushing for tax cuts for the middle and low income earners for months, adding that “We are the only party saying that tax cuts have got to be big, they have got to be permanent and they have got to be fair.”

He also said that in order to make the system fairer, “loopholes” that benefit only the rich on capital gains and tax relied on pension contributions had to be abolished, in addition to clamping down on tax avoidance and introducing more green taxes.

Ken Clark, the former Chancellor has been recorded as saying that previous efforts to boost the economy had failed and so it’s time for VAT cuts in order to encourage customers back into the shops.

The government’s plans to increase car tax for “gas-guzzling” vehicles should be bolder say MPs.

The Environmental Audit Committee’s official report backs the move as a “step in the right direction”, but chairman Tim Yeo has asked for more ambitious changes, as the benefit to the environment would be limited.

Three members wrote a minority report labelling the plan as ‘retrospective taxation’ because it put “a new tax on old cars”. They argued that the plans should be put on hold until impact was properly assessed.

Official Estimates say vehicle excise duty will rise for 43 percent of vehicles made since 2001 – but will far for 18 percent. The changes will increase the number of bands to 1, with maximum tax for vehicles with the highest emissions being $455 for 2009/10, while vehicle owners with the least polluting vehicles will pay nothing.

The report, entitled Vehicle Excise Duty as an environmental tax, said the idea was a “step in the right direction” and agreed it was not a retrospective tax. The report did however criticise some aspects of the changes, including the way they were presented in the small print of this year’s Budget, and that the cost difference between the bands was not enough to convince drivers to buy a cleaner vehicle.

“This is quite an urgent issue – emissions from cars are increasing, people are buying cars all the time,” Mr Yeo said

“We don’t want them to stop driving, but we want to them choose the greenest car. They need the biggest possible incentive, that’s why the government should be even bolder – really penal rates for high-emission cars and really attractive ‘carrots’ so that tax is almost nothing on the greenest models.”

He added that because three out of every four car were bought second-hand, the tax should apply to old as well as new cars.

The report said there were concerns over the effect of the change on lower-income households.

The minority report, by one Tory and two Lib Dem MPs, called for the increase to be put on hold until the government had produced a detailed analysis of how the changes would affect those on low incomes, and whether it would make drivers buy greener cars.

‘Plans should also be introduced to ensure tax bands of second-hand cars were clearly labelled by dealers, and proceeds from the tax should go towards designing more environmentally friendly cars,’ it said.

Jo Swinson MP, one of the authors of the minority report, said: “The public must have faith that green taxes are not about raising revenue for the Treasury, but in this case, their use is clearly more to do with filling Alistair Darling’s coffers than cutting carbon emissions from our roads.”

A Treasury spokesperson defended the scheme, saying the new plans would encourage people to use more environmentally friendly cars as well as saving 1.3m tonnes of CO2 by 2020.

“We set out the position very clearly in the Budget. Rates for pre-2001 cars will continue to be based on engine size,” he said. “Taking account of inflation, drivers of these cars will still pay less than in 1997, and some will see a decrease in inflation terms.”

The RAC Foundation said it supported the graduated scheme of vehicle excise duty as it “was helping people choose smaller cars”.

But Sheila Rainger from the RAC said it should only be for new cars.

“In the Budget it was shown as a policy to change people’s behaviour – how can you change someone’s decision made in 2001? The idea of making it apply to older cars is just wrong.”

If you were one of the many expecting tax refunds then you will be wondering where it’s got too recently. Recent news has stated that there has been an error on the HM Revenue and Customs tax form on the website that rejected all of the entries it received, this means that no one was able to pay their tax or claim anything back that they are owed.

This issue can be very serious for the people who are relying on claiming tax back this year to be financially stable. An accountant from Kent, Sue Hitchcock reported the problem as her company prepares tax returns for over 700 clients in the construction industry who are eligible for them. This problem has put her own company under threat as she stated that 40 of her customers are owed a tax return, with a total amount reaching around £100,000 between them. She is suffering financially as her clients are not paying her until they receive their refund which has been put on hold until the problem is resolved.

That’s just one person that has come forward to be suffering from this lack of management by the HM Revenue and Customs online technical support, the glitch lies with just a single text box on the actual form itself.

If you have been chasing your tax return you can expect to be waiting until they look into the problem and fix it, be sure to use a tax rebate calculator to ensure that you receive all of the money that you are owed. You would hate to be waiting around for your refund to find out that it is still incorrect and you have to go through the process all again.

The companies and individuals that use commercial self assessment software were not affected as the problem was only with HM Revenue and Customs own software.

According to Trade Union Congress research published on Wednesday by YouGov, the general public believe large companies and wealthy individuals dodge taxes too easily, which has sparked an angry response from business leaders.

In the poll, three out of four people agreed it was too easy for very rich people to get out of paying a fair level of tax, while seven out of 10 said companies get off too lightly. Only 7 percent of people said the tax system struck the right balance between rich and poor.

“Creating a fairer tax system does not mean a higher tax bill for ordinary workers,” said Brendan Barber, TUC general secretary. “Instead, clamping down on tax avoidance and closing the loopholes enjoyed by the super-rich will put extra revenue into ordinary peoples’ pockets or pay for our hard-pressed public services.”

The CBI, the employers’ organisation, responded by saying that UK businesses paid almost £150bn in taxes last year, with an additional £4bnof taxes introduced in the Budget. John Cridland, deputy director-general said, “let’s dispel the notion once and for all that business is ‘getting out of’ paying its way on tax.”

“What’s more, with businesses becoming increasingly mobile, there’s a real risk that firms will simply vote with their feet if they see the UK becoming any less competitive – costing more jobs and hurting the economy at a time when it doesn’t need it.

“As a nation, we can choose whether or not we welcome high earners who generate wealth, make investments and create jobs. In a global economy, they too can vote with their feet.”

Often hotly debated amongst economists, is the question of how far the burden of corporation tax is ultimately passed on to investors.

The CBI cited research by Michael Devereux of the Oxford University Centre for Business Taxation which suggested that 92 percent of any increase in corporation tax is passed on to workers with a lower income, and hits the economy through less investment and reduced productivity.

The government may unpick another aspect of the budget by reversing proposed new duties on motorists and hauliers already hit by rising fuel prices after Gordon Browns ministers yesterday paved the way for a new tax retreat.

While hundreds of lorry drivers blockaded streets in London, ministers signalled that Chancellor Alistair Darling would take pity on road users when he draws up his pre-budget report in the autumn.

Members of Mr Darling’s team said he was “listening carefully” to Labour MPs and others on whether to press on with plans to increase fuel duties by 2p a litre in the autumn and for a controversial reform to vehicle excise duty.

Having already been forced to water down his plans to reform capital gains tax, the chancellor held an emergency £2.7bn mini-budget, this month, to compensate losers from the abolition of the 10p tax band.

However, as fuel prices soar and household budgets tighten, Mr Darling’s aides insist he is “very aware” of concerns raised by Labour MPs and motoring organisations. The chancellor’s team realise that any retreat on the road tax plans in particular would be seen as another humbling U-turn.

But one of Mr Darling’s allies said: “If it’s the right thing to do, he will do it.”

According to Grant Thorton, the accountants, if oil prices stay at their current highs due to North Sea oil revenues, the Treasury could fund the scrapping of the proposed 2p increase in fuel duty and its new tax on larger cars, and still beat the relevant revenue forecasts over this financial year by more than £4bn.

A commons motion calling for rethink on the road tax plan has been signed by 35 Labour MPs. The plan – under which larger family cars, including models bought since 2001, would see a sharp rise in vehicle excise duty. Labour MPs have claimed that the plan to increase taxation for older family cars would hit poorer families and undermine the government’s claim to be on the side of hard-working households in difficult times.

Insiders at Downing Street say a retreat on the VED plan was not under “active consideration” but pointedly refused to say whether it would survive in the chancellor’s autumn pre-budget report. Under the plan, cars with higher emission levels would be charged a higher level of road tax.

Justice Secretary, Jack Straw said in an interview, “The chancellor and prime minister have said quite explicitly we are listening to public concerns about this and – if there are going to be decisions announced – they could be announced in the autumn.”

John Hutton, business secretary said, “The chancellor is listening to what people are saying about VED, as he has done on a number of occasions recently about tax rises.”

Labour MPs are now expected to scrap completely, the proposed 2p fuel duty rise, which was proposed by Mr Darling by six months until the autumn.

Across Europe, the impact of rising fuel prices is a growing problem. Yesterday, French president Nicolas Sarkozy, suggested a cap on sales taxes on fuel to try to hold prices down.