The suggestion has come from a leading economist, who has claimed that the government could use the “accumulated profits from quantitative easing to finance a special temporary tax cut for a year or two” after official figures revealed the potential profit by February next year from quantitative easing to the Bank of England would be around £20.7 billion, which it is claimed is more than enough to knock 2.5 pence off income tax for a year.
The economist has added that in an effort to avoid damage to the credit rating, the government could reclaim the profits from quantitative easing, claiming that “the superficial attraction of this proposal for the government is clear: recycling this money to voters rather than leaving it idle at the Bank.”
However, despite the official figures revealing that the profits from the quantitative easing programme would reach the £20 billion mark, the Bank of England are said to be sitting on the profits because it bought gilts with money it has effectively printed; and the gilts pay interest which is collected from the government.
Although the arrangement means the funds are effectively moved from one arm of the government to another, it is still recorded as a normal payment.
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Official figures published today (August 14th 2012) have revealed that the inflation rate within the UK unexpectedly rose last month, as a slowdown in sales on the High Street squeezed household budgets further.
The latest figures, compiled and released by the Office for National Statistics, have shown that during July inflation rose to 2.6 percent, compared to 2.4 percent in June; with a 21.7 percent rise in the cost of flights which saw overall transport prices rise by one percent being one of the reasons cited for driving inflation up.
A rise in the Consumer Price Index (CPI) was met with a rise in the Retail Price Index (RPI), which saw an increase from 2.8 percent in June to 3.2 percent last month.
The latest figures come less than a week after the Bank of England lowered its inflation forecast in its latest quarterly report, suggesting that the annual inflation figure was likely to fall below the two percent target by the end of the year.
Despite the latest figures showing an unexpected rise, economists believe that the two percent target is still achievable, with July’s figures being a temporary blip. One economist has said of the latest inflation figures: “Today’s inflation report is not expected to be an obstacle for further policy action in the coming months, as CPI is still expected to remain below the two percent target in the medium term.
“All in all, today’s upswing in inflation is likely to be just a blip and the downward trend is expected to resume in August. Easing demand is expected to prevail in the coming months, with retailers left with very limited pricing power.”
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On the final day of the Olympic Games in London, the Bank of England governor, Sir Mervyn King, urged bankers to learn from the successful games.
In a column within a national newspaper on Sunday (August 12th 2012), the Bank of England governor, who has previously been critical of bankers over excessive pay and poor customer treatment claimed that banks could “learn a thing or two about fair play” from the Olympics; adding that the banking system must be reformed so that it focuses less on making money in the short term and more on building businesses to serve their customer's interests over the longer term.
Sir Mervyn King said within the column: “Yes, for many years, our financial sector sustained the illusion that it was possible to become a millionaire overnight by buying and selling pieces of paper. But we have seen how paper fortunes in financial markets can disappear overnight.
“Things need to change. The Government’s plans to build a wall between banks’ risky trading on one side, and their lending to businesses and families on the other, will help; as will the injection of new competition into our banking system.”
The Bank of England governor went on to say: “The financial sector has done us all a disservice in promoting the belief that massive financial compensation is necessary to motivate individuals” adding that those who volunteered at the Olympics showed that "motivation is more than mere money.”
During his column over the weekend, Sir Mervyn King also called for international cooperation to ease the global economic crisis, saying: “If we have learnt anything from the past fortnight, it is that commitment and hard work over a long period are necessary for eventual success.”
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It has been revealed that in an effort to achieve call targets two years early, HMRC have hired one thousand staff at a cost of £34 million.
The move by the tax authority has been designed to achieve the target of answering ninety percent of calls; and HMRC have also pledged £9 million additional investment this year and up to £25 million during 2013 / 2014.
Previously, the Joint Initiative on HMRC Service Delivery have said that whilst call centre performance had improved significantly, from forty-eight percent of all attempts handled during 2010 / 2011 to seventy-four percent in 2011 / 2012; more needed to be done to provide a better call service to customers – and it is hoped that this new investment will enable this, by drastically reducing call times.
Speaking of the additional investment, HMRC’s chief executive, Lin Homer, said the move will enable the tax authority to make improvements by the end of March 2013 and sustain service levels during the next two-years, rather than wait until 2015 to achieve the target.
Ms Homer, added: “Our contact centres receive around 60 million phone calls a year and how well we operate this service is of huge importance to our customers.
“It is vital that when customers call us for help their call is answered – and in a reasonable time. The feedback we get is that the quality of the advice we give when people get through is good, but we haven’t been answering enough calls.
“I am reprioritising our resources to make this additional investment possible, without impacting our other core customer services.”
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Yesterday (August 8th 2012), the Bank of England governor, Sir Mervyn King, whilst presenting the central bank’s inflation forecasts, claimed that since the financial crisis the Libor system has stopped working and a fix needs to be found to support existing contracts based on the rate.
Last week the government launched a review into Libor, following the recent high profile cases, in the hope of finding a potential alternative of the rate setting process, which will reform the key interest rate benchmark which is used to help set the price of mortgages and loans.
Speaking during his press conference yesterday, Sir Mervyn King announced the importance of finding an alternative, saying: “What’s become apparent is there is no such thing as the inter bank borrowing rate. The dominant feature in setting inter bank borrowing rates is now the credit risk associated with the potential failure of a bank, and that varies from bank to bank.
“So the idea of having a panel to sort out the inter bank rate no longer makes sense.”
Sir Mervyn King added that the need to find a solution quickly is a must, adding: “Since there is an enormous stock of contracts, getting on for half a trillion dollars in assets which are derivative linked to Libor, then the question is how can you ensure that the Libor system keeps going in order to support that stock of existing contracts”
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