Margareta Pagano: By George, he's paralysed all of Middle England
Sunday 31 July 2011
Chancellor George Osborne has a real problem on his hands – the middle classes are not just being squeezed but are in a state of petrified paralysis.
His threats of austere times have worked, perhaps too well. The poor growth figures last week showed again just how scared the population is about spending on anything beyond essentials.
With higher energy prices, food prices and rail fares on the way, they are going to stay scared for some time to come. While it's good news that consumers are cutting debt and building up savings again, it can't be good for anyone if the middle classes are living in fear of job losses or the next electricity bill.
Predictably, the lower than expected figures sparked another bout of breast-beating from politicians and businessmen calling for a cut in the new 50 per cent top rate of tax for those paying over £150,000, to kick-start the economy. There's no doubt high taxes are a disincentive, but the truth is that those earning over £150,000 can usually find ways to avoid tax, or earn enough to live comfortable lives. It's also true that there are excellent incentives for entrepreneurs – 10 per cent capital gains and other allowances.
Far more serious is how to get taxes down for the hard-working middle classes, most of whom have seen real incomes decline over the past few years, but their tax burden soar. Accountant Grant Thornton says there are now many middle-income families paying whacking marginal tax rates. When you combine the 40 per cent top rate of income tax – which kicks in at about £43,000 – with National Insurance of 12 per cent, and the withdrawal of personal allowances above £100,000, then the tax rate is 62.5 per cent. The allowance clawback was introduced by Alistair Darling – but kept by Osborne. And although the tax threshold has gone up, there are actually many of the lower-paid who are paying more tax under the coalition.
One person who does understand the problems building up is Mervyn King, governor of the Bank of England. At the TUC conference last September, he agreed that workers – and bosses – had every right to be angry about the fall-out of the crash and the bailout. A market economy, he said, cannot survive on incentives alone – it must align those incentives to the common good. He made it quite plain that fairness is essential to any decent society.
Yet, since then, real incomes have shrunk, the disparity between top and bottom pay levels has soared – the pay of corporate bosses races ahead at about 15 per cent per annum – and bankers still get their bonuses.
Yet the middle classes keep less than half of what they earn. It's said we work for the taxman until May, but now it's mid-July. And the irony is we're paying Scandinavian-style taxes for US-style, maybe even third-world, services. Business Secretary Vince Cable warned again last week that there could be no unfunded tax cuts; he's right. Instead, we want signs of King's fairness in action, or at least promises of tax cuts for middle-income families.
It's true that firms have cash on the balance sheet, and much has been done to improve conditions for growth – from new apprenticeships to new business funds. These will take time to work through. But can we afford to wait? Something has to give. Otherwise there will be serious social discontent – not just from the unions but from all of Middle England.
James Murdoch keeps his position as chairman of BSkyB board...for now
It's difficult to know what to make of BSkyB's decision to keep James Murdoch on as chairman. By all accounts, it appears the 14-person board was unanimous in its agreement that Murdoch Jnr should stay as head of the broadcaster in which his family-run company, News Corp, holds 39 per cent.
To most outsiders the decision seems extraordinary, if not unbelievable, that a chairman should have survived such big questions raised over his responsibility and accountability in business judgements running another company.
From what one can establish, none of the board directors thought Murdoch should go, although one director is said to have suggested that he is on "probation" and that his position will be reviewed as events unfold over the phone-hacking allegations. It was also unusual for Jeremy Darroch, BSkyB's chief executive, to go on the BBC's Today programme to express his total faith in Murdoch's integrity.
But investors will have been delighted by BSkyB's continuing success. As forecast a few weeks ago, profits were 23 per cent higher than last year at more than a £1bn on revenues of £6.6bn. The dividend is up 20 per cent and investors are getting £750m of cash back – Murdoch's News Corp collects a cool £293m. By far the best news was that the number of Sky customers have risen to 10.3 million from 9.9 million. That was one of the key numbers analysts were looking for and many have now revised their target price upwards. News that the broadcaster had won the rights to Formula One motor racing until 2018 was also a bullish sign. Numis was one of the most optimistic, putting a 850p target on the shares which have slumped since News Corp withdrew its bid.
Investors have every right to remain concerned. If Murdoch is shown to have known more of what was going on at News International than he has so far admitted then the board will be forced to review its position. In the meantime, buy BSkyB; there are other bidders watching with interest.
In Brief: Beckham joins H&M to kick off his Boxer shorts range
It's intriguing that Swedish fashion giant H&M believes that giving David Beckham his own range of boxer shorts will shift more of its own clothes. He has just signed up with H&M to launch his own clothing line in 1,800 stores in 40 countries. When Beckham appeared in Armani's ads a few years ago, Selfridges reported a 150 per cent rise in men's briefs. That was in 2008 – just as the world was going into freefall. Ex-US Fed chairman Alan Greenspan swore that watching the sale of men's underwear was his best measure of the economy, and if there was the slightest sign of a fall in men's boxers, then he knew people were worried. Let's hope Beckham doesn't feel the pinch.
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