By DUNCAN SCOTT 15/10/2010
A round up of the latest major economic news and developments from the last week.
Pension contributions limit and Child Benefit cuts
This week the Government announced plans to limit the amount that savers can invest into pensions per year. The current annual limit of £255,000 is to be reduced to just £50,000 in April 2011. This reduction is just another piece in the budget deficit jigsaw, as The Treasury estimates this cut will save more than £4 billion per year going forward and they argue this clearly is a progressive tax. The cut will affect 100,000 savers a year, 80% of these have earnings above £100,000 per annum. Labour obviously attacked this claim, with David Hanson taking the lead role in trying to pick apart the numbers, but we welcome the simplification of the current contribution rules. In addition the lifetime allowance has also been reducedfrom £1.8m to £1.5m.
In related news, Chancellor George Osborne announced the withdrawal of child benefit for households where one or both partners earn more than £44,000 per year, as part of the ConLib coalition’s deficit reduction plan. The measure has been criticised as unfairly impacting upon stay-at-home mothers, yet supporters have responded by stating that those with the broadest shoulders should bear the heavier load in this wave of government cuts.
Lord Browne recommends abolishing cap on tuition fees
This week saw the release of Lord Browne’s review of university funding. In a radical shake-up of higher education, he recommends lifting the existing cap on tuition fees, thereby giving universities free reign on what they can charge students. The recommendation could see fees double on average from the present cap of £3,290 a year, bringing higher education in Britain closer to the US system. However institutions charging more than £6,000 will have to pay a rising percentage of each additional £1,000 as a levy to the government. The proposal has received severe criticism from the Liberal side of the coalition and students alike, condemning its elitist implications, whilst supporters suggest these reforms would shift the costs of higher education away from low-earning graduates and towards their higher-earning colleagues.
Andrew Sentance speaks out
Andrew Sentance of the Bank of England publically voiced his opinion on interest rates this week after 5 months of voting for a 0.25% increase at the Monetary Policy Committee Meetings. Sentance has been the sole member to vote for such a rise and sticks with his conviction that it is the right strategy to counter the risk of inflation. He feels strongly that the private sector is key to the growth in the economy, just as in the 1990’s when a similar recovery occurred. Confidence in this sector is paramount to the success of recovery and this includes that inflation will be kept under control going forward. Analysts don’t quite share his outlook as predictions are that interest rates will remain stable into 2011, as the government focuses on deficit cuts.
And finally,
This week saw the latest world record break as Khagendra Thapa Magar celebrated his 18th birthday and as a result officially became the world’s shortest man at just 26.4 inches, a full 1cm shorter than the current holder. He has already had unrivalled success in Nepal, being tourism ambassador, but now he is set for a global tour. I can’t help thinking however that the head of global records who announced the result could have chosen his words slightly better. He commented that this was “an enormous feat for him and his family” and “this is a big day for Nepal.”