ALL EYES FOCUS ON TOUGH UK BUDGET - British chancellor George Osborne will attempt to soften the impact of what is expected to be the most brutal UK Budget in a generation by promising to take up to 900,000 low earners out of the income tax system. As a result the cost to the public purse will be £3.7 billion sterling but he is expected to raise a similar amount from a new levy on Britain's banks. More than £10 billion in new taxes will be unveiled later today as he tries to tackle a £155 billion deficit. He is expected to outline £40 billion of spending cuts, with an immediate pay freeze on the pay of state employees and the slashing of middle class benefits payments. The Chancellor is also expected to announce rises in Vat and capital gains tax.
Justin Urquhart-Stewart of Seven Investment Managers in London says that today's budget is going to be 'tough' with everyone set to be worse off, except perhaps those at the lower end of the economy. He says the Chancellor is set to move on VAT with the rate expected to rise to 20% from 17.5% and coming more in line with the Irish rate of 21%. He says that George Osborne is also planning a bank levy worth £3 billion while he will also announce cuts on the gold plated pensions in the civil service. Moves are also expected on capital gains tax with reports saying Osborne will cut the gap between it and income tax. But he says that if everyone grabs a scalpel and cuts too deep, vital organs will be hit. He says that what is more important is that international markets see that the UK has a credible plan for the future to cut its massive deficit. He says that it the UK government is going to be 'too butch' on moves today, the fragile recovery will be affected.
Any increase in the VAT rate will be watched closely in Ireland. Chambers Ireland believes that any increase will bring further relief to many Irish businesses, particularly those along the border and will also increase VAT revenues for the Irish Government. The Dundalk Chamber of Commerce's director, Bill Tosh, says that sterling and the cost of fuel has risen substantially in recent months and retailers near the border are finding that it is not worth their while going north to make their purchases. He says that trading in the border areas has seen a turnabout in recent weeks and states that if - as expected - alcohol duty in the UK rises today it will be another step in closing the gap on Irish prices.
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MORNING BRIEFS - Germany has warned that a failure to reduce public debts could trigger another worldwide economic crisis, saying that its planned cuts in spending will not endanger global growth. Speaking less than a week before the Group of 20 leaders meet in Toronto, Angela Merkel, Germany's chancellor, said Berlin's stimulus programmes would be withdrawn at a responsible pace. Germany's position comes as ECB Jean-Claude Trichet said that EU governments' borrowing levels should be more strictly policed in the future. Mr Trichet said rules on borrowing needed to be much stricter, with tougher sanctions in place for countries that break the rules.
*** Belgian financial services group KBC has agreed to sell its Irish asset management arm for an upfront cash payment of €23.7m to Brussels-based RHJ International. KBC Asset Management Dublin Limited employs 58 staff and manages about €4 billion for global institutional clients. The company said there would be no job losses. The acquisition by RHJ is part of a wider move to transform itself from an industrial holdings group into a wealth management adviser.
*** On the currency markets today, the euro is trading at 83 pence sterling and at $1.23.
