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June 16 - 22 2010

News

The Telegraph

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NEWS P12

NEWS P6

Cumbria massacre The region mourns as police admit losing track of Derrick Bird

Tintoretto mystery Can you help the National Trust solve the riddle of an Old Master?

EXPAT LIFE P30

FEATURES P24-25

Silk and steel Mick Brown meets dictator-goddess Joanna Lumley

Special report: Adult learning Max Davidson on a pioneering woman in Australian business

LOTTO 09/06

LOTTO 12/06

26 14 33 45 46 49 1 16 17 19 33 34

Bonus Ball 30

Bonus Ball 9

There were two winners of Wednesday’s £7.4m jackpot and two winners of Saturday’s £2.2m prize

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The Telegraph

By Patrick Hennessy DRINKERS face a “double whammy” of tax rises in the forthcoming emergency Budget, which will see the cost of beer, wine and spirits increasing sharply for the second time in three months.

The Treasury is considering a repeat of the 5 per cent increase in alcohol duty imposed in the March Budget as part of a tax-raising package to be unveiled by George Osborne, the Chancellor, next week.

The emergency Budget is also likely to see VAT increased from its current level of 17.5 per cent as ministers battle with Britain’s £156billion deficit. A VAT increase — possibly to 20 per cent — would also hit drinkers in the pocket.

Last week industry leaders claimed drinkers had been “punished enough”. The duty paid on beer and wine has risen by 26 per cent since the start of 2008, while it has risen by 22 per cent for spirits.

However, the tax “take” from alcohol fell by £730million, from £15.1billion in 2008 to £14.4 billion in 2009, according to figures from HM Revenue and Customs and the Office for National Statistics.

Another 5 per cent duty increase in the Budget combined with an increase of 2.5 percentage points in the rate of VAT rate would put 19p on a bottle of Hardys VR Chardonnay, taking the wine’s price to £4.74, while a bottle

‘That’s how much the emergency budget is going to hurt!’

of Gordon’s gin would rise by 65p from £13.15 to £13.80.

The warnings of price rises came as Treasury sources told The Telegraph that ministers could come under greater pressure to put up taxes and identify swingeing spending cuts.

This week the new independent Office for Budget Responsibility (OBR) published revised growth forecasts, which showed the economy would expand 2.6 per cent in 2011, sharply lower than the Treasury’s current prediction of a 3.25 per cent rise.

The OBR is also estimating the size of Britain’s structural deficit — the budget gap that will remain once the economy returns to growth, which is notoriously hard to predict.

In March, the Treasury said the structural deficit

Continued from page 1 Osborne briefed his Cabinet colleagues on separate research showing that every government department, other than health and international development, would have to cut spending by between 15 and 20 per cent annually.

These cutbacks may now be too modest, with the credit rating agency study suggesting that departments might need to reduce spending by between 25 and 30 per cent. Mr Osborne said: “We didn’t choose the terrible economic situation we inherited. But we can work to put it right, to deal with our debts, to set our country on a brighter economic course.”

Lord Myners, the former City minister, last week criticised Gordon Brown’s administration for living beyond its means and said he had been frustrated by his colleagues’ “flawed thinking” on the economy. “There is

‘You’re through to the

Spending Cut Suggestions Line’

nothing progressive about a government that consistently spends more than it can raise in taxation,” he said.

Fitch, one of the agencies responsible for rating the creditworthiness of Britain’s debts, warned that the task facing the Government was “formidable”. In a detailed accounted for 8.4 per cent of GDP in 2009-10 compared with the total deficit of 11.5 per cent.

Mr Osborne has promised to eliminate the bulk of the structural deficit by 2015, and any increase in this estimate would effectively force the Government into even deeper cuts and further tax rises.

A Treasury source said: “Ministers may find their hands are forced. This could be what impacts the most, both on the emergency Budget and the Whitehall spending review later this year.”

The emergency Budget will set out the broad path of the coalition’s tax and spending policy for years to come. Raising VAT to 20 per cent would bring in more than £11.4 billion a year. Freezing all state welfare benefits could save £15billion over three years.

The Confederation of British Industry also estimates that £18 billion could be saved by a selected three-year pay and recruitment freeze in the public sector.

Criticising the duty increase, Jeremy Beadles, the chief executive of the Wine and Spirit Trade Association, said: “The truth is, tax rises aren’t working. They will further reduce the amount of money the Chancellor takes and they won’t tackle bingedrinking.

“Drinkers have been punished enough already. The last thing they and the industry need is another rise in duty.”

report, it suggested that plans drawn up by the former administration were unacceptable compared with other countries. The scale of the fiscal challenge “warrants a strong medium-term consolidation strategy”.

The warning is significant as Fitch’s rating, in effect, sets the interest the Government must pay to borrow money. Britain’s rating is currently at AAA level. Other international credit ratings agencies, including Standard & Poor’s, are closely monitoring Britain’s situation. “Much, much more needs to be done,” said Moritz Kraemer from Standard & Poor’s.

Fears were confirmed on Monday that the UK economy will grow slower than Labour predicted in the last Budget. The economy should expand 2.6 per cent in 2011 – worse than the 3.25 per cent predicted by Alistair Darling in March – according to the newly created Office for Budget Responsibility.

By Edmund Conway Economics Editor INVESTORS are placing bets on a Black Monday-style crash in the British stock market at the fastest rate since the collapse of Lehman Brothers bank in 2008, the Bank of England has warned.

In a survey of markets, the Bank warned that widespread fear over the possible collapse of a sovereign debtor, including Greece and Portugal, had sparked a mass of bets on a 20 per cent fall in the FTSE 100.

The warning coincides with calculations from the Bank for International Settlements (BIS) showing that Britain has major exposure to the Irish and Spanish banking systems,

£158bn

The exposure of banks with headquarters in Britain to the troubled Irish economy which many fear could be at risk in the next round of the financial crisis.

The Bank of England used its Quarterly Bulletin to warn that markets were under increased strain following the International Monetary Fund and European Commission’s bailout of Greece.

It said that investors had fled into safe haven assets, including Treasury bonds, gold and, to some surprise, UK government bonds. However, it pointed out that the number of investors betting on a 20 per cent fall in the FTSE 100 index, based on their purchase of options connected to such a scenario, had risen from below 5 per cent to about 13 per cent in the past month alone.

Although this is below the 25 per cent level around the time of the Lehman implosion, the rate of increase is similar. Share prices have been hit by the fears surrounding sovereign debt in recent weeks. Some analysts believe problems surrounding government bonds could trigger a repeat of Lehmanstyle events.

The BIS used its own Quarterly Report to point out that various countries in the euro area were particularly exposed to each other – both in terms of sovereign and private debt.

Banks based in Britain had larger claims on Ireland ($230 billion, £158 billion) than banks based in any other country. Britain has a $150 billion exposure to Spain.