Chancellor George Osborne is promising this afternoon's Budget will be a strategy for growth when set against big cuts in public spending, which seem likely to push the UK in the opposite direction. An increase in personal tax allowance, the amount you can earn without paying tax, is widely expected. The Beeb reckons this will …
So, we're all skint, prices are going up - and the response is to.... up the interest rate and make everything even more expensive??? How does that work then? If people are borrowing tons of money and spending it on 'stuff' pushing up prices, I can see how an interest rate hike would slow things down - but I reckon if they only measured inflation on needed things (food, energy, fuel etc) the figure would be even worse - and that's not driven by consumer spending - so.... how's an interest rate going to do anything other than slow everything down?
Low interest rates encourage more spending. More spending can lead to inflation. Raising interest rates leads to less spending. Less spending puts pressure on prices, leading to lower inflation.
Interest rates below inflation lead to raised spending through lower savings (might as well blow your rainy-day stash, it's falling in value) and higher personal debt (might as well borrow to buy, 'I'll pay back less in real terms later on').
Lower savings - bad - personal savings reduce demand for handouts later on.
Higher personal debt - bad - this is ultimately what took the banks down.
You're also forgetting...
....the effect on the pound. Put interest rates up and the pound gets stronger against other currencies (assuming they keep their interest rates the same). This makes imports cheaper - significant in a country that imports as much as we do (including oil).
People forget that the Bank of England has efectively devalued the currency - making it easier to pay off debt and export but importing a lot of inflation at the same time.
vasoline at the ready.....
I don't think it matters how much we lube up we are going to get taken from behind until we can barely walk.
I'm pretty sure by the time he's finished I'm only going to have enough spare cash to buy some tax (diesel) to get to work so I can pay some more tax.
zero net pay
I got an e-mail yesterday warning me that I have been "identified through March UK payroll as receiving zero net pay for the month of March". This is because of tax rises, of course. However, they're generously giving me 90 days to settle the debt: "You can either pay by cheque to ‘[...] Ltd’ by 17th June 2011 or agree for this to be deducted from your net pay in April and May. " Presumably that's assuming there is some net pay in April and May ...
I think I have probably been incorrectly identified in this case, but I think it's fair to say that the atmosphere is not one of general prosperity and gratitude for government generosity.
It is indeed fairly amazing how much tax they take from us in order to provide third-world public services plus moderate to strong police oppression. I guess they'll give in and promise public sector employees their usual big pensions as that bill will have to be paid by (the taxpaying serfs slaving for) a future government, not them. As a non-public-sector employee I probably won't get a pension so I had better just keep working until I keel over and die.
First time buyers
"First-time buyers are also getting help, according to widely leaked plans. Some 10,000 people will get a 20 per cent low-cost loan for new-build homes"
But new-build houses are at least 20% more expensive than pre-built ones.
... I thought the free market had correctly priced houses to be more than most of us could afford.
I guess it must be the ecotards with their green-belts and their "not enough supporting infrastructure" artificially reducing supply who're to blame, and not the greedtards, with their buy-to-lets and second homes.
Very bloody clever, I'm sure.....
"...people will get a 20 per cent low-cost loan for new-build homes."
So yet another reason to build new rather than renovate / refurbish. As if the fact the latter is subject to VAT and the former is not were not enough incentive here already.
The Law of Unintended Consequences says it's time to invest in demolition firms. Also letting it be known that you are the sort of person who can make a listed building "go on fire" could be highly profitable.
Whatever the bluster..
It will be political appesement so they can carry on with the same scam instead of dealing with the real issue which is our whole monetary system.
Untill we stop creating money with attached debt, prices and taxes will continue to rise, regardless how well they try to hide them or spread it out.
This is what you get for voting Labour!
13 years and they left us an economy of a banana republic!
1 Trillion in debt, but come next election the usual benefit pondlife will vote them back in once the tories have fixed the economy to cock it up once again.. :(
That bloke Major - remember him, Johnny Underpants? - left the country in such a piss-poor state it took a long time to start to recover. And as it was beginning to recover -- the Tories came back to screw us over again.
In the meantime - you Tory trolls ough to know better -- we know that when Boy-George says 'Budget for growth' he means we will all be dropped in horse shit apart from his mates --again.
and there was an end to boom and bust too. oh, wait. no it was all bollocks.
The red rose brigade screw us over again, yes they can blame the banks but it was the "best chancellor ever" that invented the FSA that couldn't do it's job that let the banks do as they liked.
It makes me laugh that there are still some people who think Gordon did a good job...
Headlines on BBC news at the moment:
'Defiant Gadafi Pledges Victory'
'Osboron to Pledge 'growth' Budget'
I wonder which one stands the most chance of success?
Big, fat, hairy deal...
***"Osborne is also expected to do something to alleviate fuel prices – possibly by delaying the planned rise in fuel duty due next month."***
Oh, joy. He's not going to add one more penny to a litre of petrol that is currently going up by several pence a month.
For a litre of unleaded costing £1.32, we already pay £0.59 fuel tax and £0.22 VAT. Varying that by 1p either way is going to make bugger all difference to the average motorist (about 50p to a £65 fill up).
And Mervyn King enjoys another month of no-one noticing he's a banker.
Happily feeding the wealthy with limitless credit whilst whipping those with steady income and modest savings to pay for it all.
Even when the government, whose job it is to act in the best interests of the people, can't be arsed to do so, somehow the nation and the press still expect the governor of the biggest and most solidly ingrained bank in the country to be our saviour. Where the hell does that come from?
The problem with interest rates
Is they are a blunt instrument unsuited to the current problems the economy faces.
Prices are not high due to general demand, they are high due to the cost of supply., especially, fuel and commodoties.
Suppressing peoples ability to buy fuel and food wont bring down price inflation as the inflationary pressure is outside our control.
What an interest rate rise will do is give impetus to the banks to massively raise interest rates, especially on unsecured debts like credit cards and overdrafts. A 0.25% rate rise from the Bank of England will trigger rises across those markets of between 3 and 5%!
The current oil price is speculator driven, supply hasnt diminished, but the futures market is using political instability to drive prices despite the oil producers like Saudi taking up the slack from Libyan output.
But the issue with oil is a red herring as well, the goverment has driven inflation with a VAT rise and fuel duty increases and thats just on fuel, the overall VAT rise has pushed prices across the board as well, making the average mortgage more expensive wont bring down prices when the two factors affecting the price (commodites and taxes) wont be impacted.
That would be a valid argument on interest rates if...
...if the interest rate the banks charge borrowers for new business was in any way related to the rate they pay the BoE. It's not. The interest rate on past loans and mortgages is tied in to specific agreements that keep them low, but on new loans there's a ludicrous artificial markup of some 8½% and it's only held there by the banks acting in synch in a hugely anti-competitive manner. Trying to use classic economic arguments that everything is immediately and directly related doesn't hold when there are these artificial mechanisms in place.
On another issue, a new loan mechanism for first-time-buyers does not help first-time-buyers at all. It helps those with a huge stake in property already to maintain their artificially high asking prices, just like these 'assisted ownership', 'key-worker' and 'low-cost-housing' schemes. Again, it's not a help, it's another prop to an anti-competitive system that's long overdue a correction.
read my fourth paragraph
re banks, base rate and interest rates on unsecured debt.
LIBOR is at very low levels, the banks need an interest rate rise to further increase margins, whilst giving nothing back to savers.
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