George Osborne to offset further spending cuts with capital investment

Mersey Gateway and HS2 projects will be announced this week as Vince Cable is last cabinet minister to settle with chancellor

Gorge Osborne agreed the final details of spending cuts worth £11.5bn for 2015-16 on Sunday, ahead of an announcement this week that will also see the Treasury unveiling a multi-billion, six-year infrastructure investment programme.

Vince Cable, the business secretary, was the last cabinet minister involved in the spending review to settle, although defence, education, local government, health and international aid also kept negotiations with the Treasury going until very recently.

At one stage Osborne said that ministers who refused to cut their budgets for would be summoned before the "star chamber" for a grilling on why they could not find savings. In the event the "star chamber" was never convened for this purpose, although Treasury sources insisted that the threat of a summons did help to concentrate minds.

Osborne will announce details of the 2015-16 spending review cuts in a statement to the Commons on Wednesday.

In a move which suggests that the chancellor wants to prevent Labour being seen as the party most committed to capital spending, the Treasury will this week combine the spending review with the announcement of a series of infrastructure investment projects running from 2015-16 to 2020-21.

Given that the total sum allocated in the budget for capital spending in 2015-16 alone is £50bn, the headline sums involved could be huge.Danny Alexander, the chief secretary to the Treasury, will announce the details in the Commons on Thursday.

Details of the first tranche of work on the HS2 high-speed railway are expected to be madeThe infrastructure investment programme will be funded from within the Treasury's long-term spending envelope and it will include spending on road, rail and high-speed internet. The projects are expected to include upgrading the A14, a new Mersey Gateway bridge in the north-west and the first tranche of work on the HS2 high-speed railway.

Alexander agreed the final details of the spending review with his Lib Dem colleague Cable on Sunday morning. At around the same time, Osborne and his Labour opposite number, Ed Balls, were both raising the prospect of further spending cuts after 2015-16 in interviews on the Andrew Marr show.

Osborne told the programme that on Saturday he reached a settlement with the Ministry of Defence that would protect frontline service personnel but lead to the loss of civilian jobs. Several hundred posts are expected to go, with the rest of the estimated £1.5bn savings achieved through cuts to civilian allowances, efficiency measures and contracts with suppliers being renegotiated.

"There will not be a reduction in our military capability," Osborne said. "We're not going to reduce the number of soldiers, sailors, airmen, and in fact we're actually going to be able to spend some money on things like cyber [security], which is the new frontier in defence."

The Labour party has already announced that it will accept the coalition's overall day-to-day spending plans for 2015-16, although it reserves the right to change how current spending is allocated, and to increase capital spending. But yesterday Balls went further, saying he expected to make cuts beyond 2015-16.

"Do I think after 2015-16, the next Labour government will be making very difficult decisions which will involve some cuts? Yes," the shadow chancellor said.

Some in Labour are strongly opposed to this. In a letter in today's Guardian, Peter Hain, the former cabinet minister, Neal Lawson, chair of the pressure group Compass, and other signatories say that continuing austerity measures beyond the next election would be "politically and economically disastrous".

Balls has already announced that Labour would cut winter fuel payments for wealthy pensioners after the general election, saving £100m a year. The government is committed to keeping winter fuel payments for all pensioners until 2015 and until now, senior Conservatives have said very little about whether or not they would renew that pledge.

But Osborne suggested that a rethink was now under way, stressing that benefits for pensioners had to be "sustainable".

"On pensioner benefits, including the winter fuel allowance, we made a very clear promise about this parliament, and we believe in keeping our promises to the British people," Osborne said.

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Starbucks pays corporation tax in UK for first time in five years

Starbucks says customers 'should not have to wait for us to become profitable' before corporation tax is paid

Starbucks, one of the companies exhorted by the prime minister to "wake up and smell the coffee" over tax, has handed over £5m to HM Revenue and Customs – its first payment in five years.

But the cash has only gone some way towards assuaging critics, one of whom complained that companies should not be able to "pick and choose" how much tax they wanted to pay.

The coffee shop chain said on Sunday it had made the contribution to please its customers and would be paying a second £5m instalment in the last half of the year despite claiming the business overall continued to make a financial loss in Britain.

"Six months ago, we felt that our customers should not have to wait for us to become profitable before we started paying UK corporation tax," the company explained in a written statement.

"We listened to our customers in December and so decided to forgo certain deductions which would make us liable to pay £10m in corporation tax this year and a further £10m in 2014. We have now paid £5m and will pay the remaining £5m later this year," Starbucks added.

Starbucks has paid £5m corporation tax this year with a further £5m to come. It says it will pay another £10m in 2014  The move follows a barrage of criticism, including a comment from David Cameron at the World Economic Forum in Davos in January when he attacked low tax payers using the coffee reference – though not specifically naming Starbucks, Google or Amazon .

A spokeswoman for Starbucks declined to say how many customers it had lost following the high profile row which started with demonstrations outside some of the outlets by the campaign group, UK Uncut and ended with scorching criticism from parliament's public accounts committee.

Margaret Hodge, MP and chair of the PAC, said on Sunday she welcomed the first payment by Starbucks but added: "Companies should not be able to pick and choose how much tax they pay. We need a system which ensures that everybody pays a fair share of tax on the profits they gain from the economic activity they undertake."

The initial row followed revelations that Starbucks had paid £8.6m in corporation tax in its 15 years of trading in Britain, and nothing in the last three years despite overall sales of £3bn.

Amazon, which had book and CD sales in Britain of £3.35bn in 2011, only reported a "tax expense" of £1.8m while Google's British business paid £6m to the Treasury in 2011 on UK sales of £395m.

During a period of austerity, the issue has turned into a major political storm with the prime minister making tax avoidance one of the key issues at last week's G8 summit of leading economies at Lough Erne, Northern Ireland.

Campaigners claimed that various licensing and supply agreements with Dutch and Swiss arms of the Starbucks empire were being used to allow it to switch profits from Britain to other countries.

UK shops are able to buy their coffee from Switzerland at a 20% premium and yet the foreign business is charged corporation tax there of 12% compared with Britain's level of 25%.

Kris Engskov, managing director of Starbucks UK, responded last December by promising to pay £20m within two years.

Accounts filed by Starbucks UK with Companies House this week will show the British side of the business still not formally profitable. Starbucks is expected to close up to 30 of its shops around the country this year. A similar number were shut last year amid tough competition from Costa and other brands.

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Article Source : http://www.guardian.co.uk