by Peter Barker

    LONDON, Dec. 9 (Xinhua) -- Reaction to British Chancellor Alistair Darling's pre-budget report (PBR) has been mixed and swift.

    Darling, the British finance minister, revealed his PBR in a lunchtime statement to the House of Commons. The PBR is significant as it comes after a period of financial turbulence that has seen the country suffer the worst recession since the Second World War. It also comes just six months before a general election in which Darling's Labor Party looks set to be punished by the electors.

    Darling's headline announcements were: a one-off tax on bankers' bonuses; a 0.5 percent increase in National Insurance contributions, which helps fund the National Health Service (NHS);a forecast decline in 2009 GDP of 4.75 percent; higher public sector borrowing requirement (PSBR) of 178 billion GB pounds for 2009; a commitment to halve PSBR over the next four years; an increase of 2.5 percent in the state pension; a 0.8 percent cap on public spending growth; a cap on public service workers pay increases of 1 percent for two years.     

    POLITICAL REACTION

    Political reaction was predictably critical with the spokesmen of the two main opposition parties picking out what they thought were the weaknesses in Darling's PBR. They were particularly critical of the PBR in light of the coming election in Spring next year.

    Conservative Shadow Chancellor George Osborne replied to Darling in the House of Commons: "Confronted with the biggest budget deficit in our peacetime history, the chancellor faced a choice. Would he take the tough spending decisions before the general election, or would he completely duck them? We were promised a pre-budget-report and instead what we got was a pre-election-report.

    "They (Labor) have lost all the moral authority to govern today. Instead, the full scale of the economic disaster that Labor has visited upon the country is clear to us all.

    "The biggest debt we have ever known. Spending cut on almost everything. Taxes up on anyone who earns more than 20,000 pounds a year. Labor's new tax on jobs."

    The Liberal Democrats Treasury spokesman Vincent Cable criticized the PBR "There has never been a deficit like this and we need a sensible and coherent plan for dealing with it.

    "The chancellor has ducked the hard choices on spending and cuts. Instead of facing up to reality he has chosen to move the goal posts by relying on fanciful growth forecasts.

    "He could have used this budget to make the tax system fairer. But instead people on middle incomes will be paying more tax while those at the top end continue to enjoy their loopholes.

    "The bankers' payroll tax is the worst type of gesture politics and a gift wrapped invitation to tax avoidance."     

    BANKERS' REACTION

    Reaction to the new tax among bankers was one of shock, and there were critical voices who said that it could lead to an exodus of bankers from Britain to other global financial centers such as New York or Hong Kong.

    Angela Knight, chief executive of the British Bankers' Association, warned that the tax would endanger the City's position as a global financial center: "Viewed from abroad, London may well look now like a significantly less attractive place to build a business. We must repeat that only concerted international agreements will succeed in reforming remuneration in the financial sector."

    Sean Drury, international mobility partner, PricewaterhouseCoopers LLP said: "The proposed 50 percent levy on bankers' bonuses is unlikely in isolation to cause employers or employees to decide to relocate outside of the UK.

    "But, in combination with the incoming 50 percent income tax rate (already announced and set to take place on April 6, 2010), National Insurance Contributions increases, restrictions on pensions tax relief and changes to the taxation of foreign nationals, the tax on bonuses will contribute to the declining attractiveness of the UK as a business location. Other territories will be keen to entice these highly-paid, highly specialized and highly valued employees.

    "The changes announced in this PBR and the previous budget impact the wealth creators that the UK relies on to compete on a global stage and gives further impetus to those making decisions about where to locate their businesses to question their connection to the UK.

    "With a third of the FTSE 100 companies CEOs being foreign nationals, and their average cash remuneration being around 800,000 GB pounds, ignoring long-term incentive arrangements, the growing contrast with the more stable and benign tax regimes of other economic hubs will present the UK as an increasingly unfriendly place to earn money."     

    BUSINESS REACTION

    Richard Lambert, director general of the Confederation of British Industry, said: "There were two tests for this PBR. First, would it increase the credibility of Government plans to restore the public finances? Second, would it be a platform for job creation and economic growth? The Government has failed on both counts.

    "The Chancellor has made a serious mistake imposing an extra jobs tax at a time when the economic recovery will still be fragile. Increasing National Insurance contributions will hold back job creation and growth.

    "He has also missed the opportunity to increase the UK's credibility by reducing the public deficit earlier. The Government still needs to set out fuller plans on how it will reduce public expenditure."

    David Frost, director general of the British Chambers of Commerce (BCC), said: "The Chancellor's Pre-Budget Report sets out some good schemes to support businesses -- like the extension to the Enterprise Finance Guarantee -- but these have been undermined by the announcement of an additional hike to National Insurance Contributions in 2011.

    "It's clear that NIC rises mean a brake on employment growth. While everyone understands the importance of restoring the public finances to a sustainable path, a tax on jobs is not the way to do it.

    "The Chancellor's medium-term growth predictions are optimistic, and we would still like to know where this growth is going to come from if taxes, like National Insurance, go up and directly impact on business.

    "Businesses across the country still want to see the detail of how the Chancellor intends to cut the public sector deficit, and ensure more sustainable levels of public spending. Investor confidence depends on it."     

    TRADES UNION REACTION

    Trades unions, which have close ties to the Darling's governing Labor Party, were supportive and made few criticisms, although they were angered by the Chancellor's decision to cap public workers' pay increases to 0.8 percent for three years.

    The Trades Union Congress General Secretary Brendan Barber said: "The Chancellor could have been much bolder in moving to a fundamental reform of tax where the super-rich were asked to pay their fair share. The National Insurance increase will hit ordinary workers and business, though of course we welcome the exemption for those earning 20,000 pounds or below, which is nearly half the workforce.

    "On the biggest decision he is right. The Chancellor has ruled out big cuts in the near future. To have cut spending so soon after a serious recession would be gross economic irresponsibility. Instead he has concentrated on helping the unemployed and given a welcome boost to investment in the green technologies of the future. This is not just good for jobs, but helps rebalance the economy away from our over-reliance on finance. But a centralized pay cap on public sector staff is unfair, inefficient."

    Dave Prentis, general secretary of Unison the UK's largest union, applauded the tax on bankers' bonuses: "The people who earn most should pay the most. Instead we have the disgraceful spectacle of rich bankers threatening to leave the country if they don't get their massive bonuses. Where is their loyalty? In tough times the rich should show leadership, not run off to the nearest tax haven."

Special Report:  Global Financial Crisis