If you are a high earner then it could be down to you to pay for the mess that the UK economy is in right now.

The Chancellor Alistair Darling is looking at reducing the VAT rate from the present 17.5% to 15% to give an immediate stimulus into the UK economy. However, moves like this along with extra government spending will need to be paid for and this is suggested to be from high income earners.

It has been suggested that UK Government borrowing could hit £100 billion and this will need to be repaid at some stage. The tax increases will likely be delayed until after the next election and the higher rate tax increase will not in itself be enough to recoup the “Tax Hole” caused by the proposed cuts.

Chancellor Alistair Darling has pledged action to deal with the “extraordinary turbulence” in the financial system in his speech to the Labour conference.

He said the UK economy was going through “difficult times” but said he was “confident” it would emerge from the current downturn stronger.

He promised to avoid “knee-jerk” actions, saying his main priority was to stabilise the banking system.

Mr Darling also said Gordon Brown was the best man to deal with the crisis.

Uncertain times

Mr Darling sought to reassure Labour delegates that although the UK was facing “unprecedented economic challenges”, the government had the right policies to deal with them.

One thing I am certain about is that we have the right prime minister, the right team and the right policies

Alistair Darling

Labour pressed over windfall tax
Brown’s financial difficulties
Miliband urges optimism

BBC political editor Nick Robinson said that in his speech Mr Darling had sought to put the fact he was a “low key” speaker to his advantage, delivering a reassuring message about the economic situation.

“These are very uncertain times,” he said.

“But one thing I am certain about is that we have the right prime minister, the right team and the right policies to help the country through them.”

Alhough the economy was facing a “bumpy” period ahead, Mr Darling said its fundamental strength “means we can be confident about the future”.

Mr Darling said the action the government had taken to support the troubled banking system in recent days contrasted with the attitude of the Conservatives who had “walked away” from tough decisions over Northern Rock and other key issues.

“They may well claim to be committed to financial stability but people should be judged on what they do not what they say,” he said.

Mr Darling said he was committed to taking whatever steps were necessary to tackle market turmoil, including introducing new legislation on bank deposits and regulation within weeks.

He said regulators would look at the issue of excessive City bonuses with the Financial Services Authority (FSA) saying it could punish firms for encouraging too much risk-taking.

How extraordinary that a Chancellor could give a speech in the middle of an economic crisis and provide no plan about how the government is going to handle it

George Osborne, Shadow Chancellor

Analysis: Darling’s message
FSA to consider bonus clampdown

But he warned that solutions to the problems of globalisation will not be found by one government alone.

The Conservatives said it was “extraordinary” that Mr Darling ad “no plan” to deal with the current financial crisis while the Lib Dems said the chancellor was “complacent” about the worsening state of the economy.

Tax question

Mr Darling said the government would be “disciplined” in its attitude to the public finances and would have “to live within its means”.

Many experts have said taxes will have to rise to cope with the shortfall in revenue as the economy slows.

When asked earlier by the BBC if income tax would go up Mr Darling declined to answer “yes” or “no”, instead saying “it is not the time to take money out of the economy”.

When asked again, Mr Darling told the BBC that the time to pay back debt was when the economy was doing better.

He also said that at the moment, rather than increasing taxes, basic rate tax payers were paying less tax this month.

He rejected calls from union leaders and MPs on the left of the party for tax rises for the wealthy and also for a “Robin Hood” energy tax.

HAVE YOUR SAY Darling is saying he will tackle faults in the economic system, what is the purpose of a chancellor?
Confusus, Wales
Send us your commentsHis speech followed a debate during which unions and some Labour MPs demanded a windfall tax on energy firms to help impoverished households pay their gas and electricity bills.

The demands for a levy, which was rejected by Mr Brown earlier this month, were spearheaded by Unite’s joint general secretary, Tony Woodley.

Addressing the same issue, Business Secretary John Hutton said a tax would deter potential investors.

The windfall tax and other fuel poverty calls were backed by delegates at the party conference.

However the result is largely symbolic – it means the party’s National Policy Forum will have to discuss the issue, rather than actually making the issue official party policy.

‘City excess’

Under pressure to curb the culture of excessive City bonuses, Mr Darling said banks should not behave “recklessly” or do anything that could hurt the wider economy.

Speaking on the same issue, Mr Hutton said “curbing excesses” in the City may be necessary to ensure the integrity of the financial system was not “undermined”.

The chancellor and Mr Brown will fly from the conference to New York to seek international agreement on tighter regulation of the financial sector.

Other ministers who spoke on the third day of the conference included Foreign Secretary David Miliband, Defence Secretary Des Browne and Business Secretary John Hutton.

Chancellor Alistair Darling has pledged action to deal with the “extraordinary turbulence” in the financial system in his speech to the Labour conference.

He said the UK economy was going through “difficult times” but said he was “confident” it would emerge from the current downturn stronger.

He promised to avoid “knee-jerk” actions, saying his main priority was to stabilise the banking system.

Mr Darling also said Gordon Brown was the best man to deal with the crisis.

Uncertain times

Mr Darling sought to reassure Labour delegates that although the UK was facing “unprecedented economic challenges”, the government had the right policies to deal with them.

“One thing I am certain about is that we have the right prime minister, the right team and the right policies” Alistair Darling

BBC political editor Nick Robinson said that in his speech Mr Darling had sought to put the fact he was a “low key” speaker to his advantage, delivering a reassuring message about the economic situation.

“These are very uncertain times,” he said.

“But one thing I am certain about is that we have the right prime minister, the right team and the right policies to help the country through them.”

Alhough the economy was facing a “bumpy” period ahead, Mr Darling said its fundamental strength “means we can be confident about the future”.

Mr Darling said the action the government had taken to support the troubled banking system in recent days contrasted with the attitude of the Conservatives who had “walked away” from tough decisions over Northern Rock and other key issues.

“They may well claim to be committed to financial stability but people should be judged on what they do not what they say,” he said.

Mr Darling said he was committed to taking whatever steps were necessary to tackle market turmoil, including introducing new legislation on bank deposits and regulation within weeks.

He said regulators would look at the issue of excessive City bonuses with the Financial Services Authority (FSA) saying it could punish firms for encouraging too much risk-taking.

“How extraordinary that a Chancellor could give a speech in the middle of an economic crisis and provide no plan about how the government is going to handle it” George Osborne, Shadow Chancellor

But he warned that solutions to the problems of globalisation will not be found by one government alone.

The Conservatives said it was “extraordinary” that Mr Darling ad “no plan” to deal with the current financial crisis while the Lib Dems said the chancellor was “complacent” about the worsening state of the economy.

Tax question

Mr Darling said the government would be “disciplined” in its attitude to the public finances and would have “to live within its means”.

Many experts have said taxes will have to rise to cope with the shortfall in revenue as the economy slows.

When asked earlier by the BBC if income tax would go up Mr Darling declined to answer “yes” or “no”, instead saying “it is not the time to take money out of the economy”.

When asked again, Mr Darling told the BBC that the time to pay back debt was when the economy was doing better.

He also said that at the moment, rather than increasing taxes, basic rate tax payers were paying less tax this month.

He rejected calls from union leaders and MPs on the left of the party for tax rises for the wealthy and also for a “Robin Hood” energy tax.

Darling is saying he will tackle faults in the economic system, what is the purpose of a chancellor?Confusus, Wales

Send us your commentsHis speech followed a debate during which unions and some Labour MPs demanded a windfall tax on energy firms to help impoverished households pay their gas and electricity bills.

The demands for a levy, which was rejected by Mr Brown earlier this month, were spearheaded by Unite’s joint general secretary, Tony Woodley.

Addressing the same issue, Business Secretary John Hutton said a tax would deter potential investors.

The windfall tax and other fuel poverty calls were backed by delegates at the party conference.

However the result is largely symbolic – it means the party’s National Policy Forum will have to discuss the issue, rather than actually making the issue official party policy.

‘City excess’

Under pressure to curb the culture of excessive City bonuses, Mr Darling said banks should not behave “recklessly” or do anything that could hurt the wider economy.

Speaking on the same issue, Mr Hutton said “curbing excesses” in the City may be necessary to ensure the integrity of the financial system was not “undermined”.

The chancellor and Mr Brown will fly from the conference to New York to seek international agreement on tighter regulation of the financial sector.

Other ministers who spoke on the third day of the conference included Foreign Secretary David Miliband, Defence Secretary Des Browne and Business Secretary John Hutton.

News reported by The BBC

Chancellor Alistair Darling says that laws will be introduced to tighten the rules governing the UK banking system.

His comments came in a BBC interview as the world digested the fate of two of Wall Street’s historic banks – Lehman Brothers and Merrill Lynch.

He called the resulting turmoil in global shares inevitable, but added that “on the positive side” UK regulators were taking action.

Separately, UK bank Barclays said it is looking to buy certain Lehman assets.

Speaking to the BBC, Mr Darling said that governments, central banks and regulators around the world have made it clear they will do “everything that they possibly can to maintain stability in the financial system”.

He said this was demonstrated on Monday after the Bank of England, European Central Bank and US Federal Reserve all made billions of dollars of additional funds available to help out the money markets.

But he added: “Now that doesn’t mean that any government or regulator can say to people ‘look, nothing is going to go wrong’, and that we can somehow stop the huge economic forces and changes that are taking place at the moment.

“But what it does mean as we showed with Northern Rock last year, that there we had a problem; if we hadn’t done something about it, it could have infected the rest of the banking system so we took action and eventually we had to take Northern Rock over.”

News reported by The BBC

Chancellor Alistair Darling says he has made no decision on relaxing government rules on borrowing, but said they are constantly kept under review.

He said the world’s economy was going through its “greatest shock” for 60 years. The government had to help but rules remained “critically important”.

The Treasury is considering changing the rule that public sector debt should not exceed 40% of national income.

The Tories say it would be the end of Gordon Brown’s reputation for prudence.

The BBC understands that officials are drafting a looser framework so that the Treasury would not have to break the present borrowing limit of 40% of national income.

The rules were laid down by Mr Brown as chancellor after Labour came to power in 1997 – he promoted them as evidence of the prudent way he was running the economy.

“And the first major test, the first economic downturn that the world has faced, he has to abandon them” George Osborne Shadow chancellor

But it is predicted these will be breached as the government faces an £8bn tax revenue shortfall, because of the slowdown on the High Street, the housing market stalling and a drop in company profits.

But speaking to BBC Radio 4′s World at One programme, Mr Darling said: “I’ve made no decision. I said 12 months ago in I think the very first interview I gave as chancellor to the Financial Times that we always keep these things under review.

“So there’s nothing new there. I’ll report at the pre-Budget report to the House of Commons this autumn on where I believe we are. But I believe that rules are important.”

He said debt levels were lower than Germany, France, Japan and the US and had been “substantially” reduced since 1997.

“We go into what is a difficult position from a much much stronger position than we had in the past,” he said.

He said it was right, while the world’s economy was being hit by “two shocks” – the credit crunch and high oil prices – that borrowing is allowed to support the economy.

“But what is crucial is that you do have rules to ensure that public finances are sustainable in the medium term. That is why rules are so important now and will remain important in the future,” he said.

Speaking earlier shadow chancellor George Osborne said: “It’s basically the end of the Brown era of economics.”

Liberal Democrat Treasury spokesman Vince Cable described news of the Treasury’s deliberations as “embarrassing, even humiliating” for the government.

In the House of Lords, the Tory ex-Scottish Secretary Lord Forsyth asked why, in a Finance Bill debate, Treasury spokesman Lord Davies had not referred to the claims once in his 20-minute speech.

He said as chancellor Mr Brown had always talked about not returning to boom and bust, adding: “Well, we have had the boom and today we have had confirmation of the bust.”

Robert Chote, director of the Institute for Fiscal Studies, said the government should have rethought the rules “before the point at which it looks as though you are just about to break them”.

News reported by BBC

Rising food and fuel costs pushed UK inflation up to an 11-year high of 3.8% in June from 3.3% in May, figures show.

The rise means inflation is now well above the government’s 2% target, and may reduce the chance of a UK rate cut.

The Bank of England, which has already said inflation may top 4% this year, has to balance the need to control inflation with worries over growth.

The RPI inflation measure – often used as a benchmark in pay negotiations – rose to 4.6% in June from 4.3% in May.

The annual rate of inflation is at its highest level since 1997, when the Office for National Statistics started using its current methodology to calculate the figures.

Restraint

Commenting on the figures, Chancellor Alistair Darling called for wage restraint in order to help rein in price growth.

“We saw what happened in the past when inflation got out of control and people found that every penny they got in a wage increase was swallowed up by food and fuel prices going up,” said Mr Darling.

“Whether you are in the private sector, or public sector, whether you are sitting in the board room or working on the shop floor, we cannot allow inflationary wage increases because that would mean that everyone, especially people on lower incomes, would suffer,” he said.

But the high inflation figures drew criticism from the Conservative and the Liberal Democrats, who questioned Mr Brown’s effectiveness in his former role as chancellor.

“Inflation is now more than double the rate that Gordon Brown inherited from the last Conservative government,” said shadow chancellor, George Osborne, who also accused Mr Brown of “shrugging his shoulders” over the economic woes.

Liberal Democrat Treasury spokesman Vince Cable said the data proved Gordon Brown had lost his focus while chancellor.

“Gordon Brown is now facing the consequences of years of inaction over spiralling personal debt and the unsustainable bubble in the housing market,” said Mr Cable.

“The Prime Minister bases his credibility on his economic record, yet it is now becoming startling clear he was asleep at the wheel.”

Cheaper clothes

Food and non-alcoholic drinks were the main factors fuelling the rise in inflation, with prices increasing at a record pace of 9.5% in June from the same month a year earlier.

“The fact that the economy’s slowing will bring inflation down, but not till next year” John Cridland, CBI

When compared with May, food and non-alcoholic drinks were 2.1% higher.

Meanwhile, surging oil prices have driven up the cost of fuel with the average price of petrol increasing by 5.3 pence a litre.

One positive for consumers during the month was a drop in the cost of shoes and clothes as retailers cut prices in an attempt to attract more business.

Rate dilemma

The inflation figures, which came in above forecasts for the third month in a row, mean that the Bank of England is now likely to have less opportunity to cut interest rates.

The Bank is currently trying to balance growing evidence of an economic slowdown against the problem of rising inflation.

“The Bank of England can’t cut rates until it is convinced inflation is moving downwards,” said James Knightley, economist at ING.

However, the British Chambers of Commerce (BCC) warned it would be a “serious mistake” if the Bank’s Monetary Policy Committee (MPC) decided to tackle rising inflation by raising rates.

“Further increases in CPI inflation, to levels above 4%, are inevitable in the next few months whatever the MPC decides to do,” said BCC economic adviser David Kern.

Economic gloom

The inflation figures add to mounting bad news for the economy.

Earlier on Tuesday, the British Retail Consortium said that like-for-like sales on the UK’s High Streets were down 0.4% in June compared with a year earlier.

On Monday, figures showed that factory gate prices – a measure of how much manufacturers charge for their goods – rose 10% in the year to June, the first double-digit annual rise for more than 20 years.

However, the CBI business group said that while UK businesses will be facing a few “tricky” months as consumers tighten their purse strings, there could be a “silver lining” in store for the economy.

“The fact that the economy’s slowing will bring inflation down, but not till next year,” said CBI deputy director general John Cridland.

The annual rate of inflation is at its highest level since 1997, when the Office for National Statistics started using its current methodology to calculate the figures.

News reported by BBC