9:24 AM

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Taxman's concession on big bills

Addison Ray

15 September 2010 Last updated at 08:12 ET

A new concession will mean many people facing the highest demands for back-tax will not face interest payments.

Those given time to pay more than �2,000 in underpaid tax will now have interest waived - in line with those with smaller demands, MPs were told.

The Permanent Secretary for Tax, Dave Hartnett, told the Treasury Committee that the authorities "could have done better" to prepare people for bills.

More than two million people underpaid income tax in the past two tax years.

This was the result of errors in their Pay As You Earn (PAYE) tax code.

About 900,000 taxpayers will not have to pay anything after the government raised the write-off threshold from �50 to �300, a concession costing the Treasury �160m.

This left 1.4 million people owing about �2bn, or �1,428 each on average.

Letters

Dave Hartnett was appearing before the MPs on the Treasury Committee, together with Dame Lesley Strathie, HM Revenue and Customs (HMRC) chief executive, and Bernadette Kenny, director general of personal tax.

In a significant change in policy announced at the committee, Dame Lesley said that people who owed more than �2,000 in tax in the latest round would not have to pay interest if the tax authority gave them extra time to pay.

Before the concession, people had three months to pay up after which point they would be charged interest on the money owed.

"Where people need time to pay, they will not be charged interest," she said.

Ministers had asked for the change, and there is currently no estimate of the cost of the concession to the Treasury.

Mr Hartnett explained that the concession was designed to give the same treatment to all taxpayers, whatever they owed. However people must tell their tax office that they need time to pay - and get a repayment plan - in order for the concession to apply.

Dame Lesley - who noted that the PAYE system broadly worked for more than 80% of PAYE taxpayers - said that she had "empathy" for those facing underpayments and wished to make it as easy as possible for them to pay.

She acknowledged that the backlog of unresolved income taxes could mean that more people would receive letters about overpayment or underpayment of tax. A recent Audit Commission report said that there were 18.2 million unresolved income tax cases on HMRC's books, but not all of these would lead to a change in tax calculations.

Mr Hartnett added that HMRC needed to improve communications with its customers.

Timetable

Some 45,000 customers have been receiving letters from HMRC and 14,000 have so far cashed refunds as they had overpaid tax.

Dame Lesley said that a decision would be made later in September over how and when the remaining letters would be sent out.

Dame Lesley told the committee that in her estimation, 15% of unresolved cases from 2008-10 might lead to a refund of tax and 3% could lead to a tax demand.

Committee chairman Andrew Tyrie told the HMRC representatives: "We hope you have stabilised the problem."

He said the committee would now consider whether to conduct an inquiry into the workings of HMRC in the medium-term.

Have you received a letter from HMRC? Do you feel reassured by this concession? Get in touch using the form below.



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8:54 AM

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Japan moves to combat rising yen

Addison Ray

15 September 2010 Last updated at 10:28 ET Continue reading the main story <!-- S MD_WIDGET --> <!-- E MD_WIDGET -->

Japan's leading shares rose as much as 3% after authorities intervened in the currency markets to weaken the value of the yen against the dollar.

The central bank stepped in to sell yen and buy dollars, a day after the yen hit a 15-year high against the dollar.

It is the first time in six years that the Bank of Japan has intervened, and further action has not been ruled out.

A strong yen makes Japanese exports more expensive, and reduces profits when earnings are repatriated.

The dollar was up 3.1% to 85.63 yen, on track for its biggest daily gain in nearly two years. The euro was also up 2.9% at 111.10 yen.

Currency strategists suggested this was a sign of the move's initial success, but cautioned about making early judgements.

Japan did not reveal the size of the intervention, but analysts suggested its authorities could have sold as much as 1 trillion yen ($11bn; �7.5bn), one of the largest amounts it has spent in a single day.

Investors welcomed the intervention, sending Japan's Nikkei share index up by 2.9% at first, with the index eventually closing 2.3% higher at 9,516.56.

The yen had spiked after news filtered through that Prime Minister Naoto Kan had survived a leadership challenge from rival Ichiro Ozawa.

Traders had reckoned Mr Kan would be less likely than Mr Ozawa to take measures to weaken the yen.

Economic harm
Continue reading the main story

"Start Quote

The effect from Japan's solo intervention won't last very long. We have to see how the US and European monetary authorities react"

End Quote Yuji Kameoka Daiwa Institute

But in a brief news conference, Finance Minister Yoshihiko Noda said: "We have conducted an intervention in order to suppress excessive fluctuations in the currency market.

"We will closely monitor currency developments, and take firm action including intervention.

"Our country's economy is still in a very severe situation with continued deflation," he added.

The yen's rapid appreciation "harms the stability of the economy and finances. We cannot tolerate it."

Japanese exporters praised the intervention.

"From the standpoint of aiding the competitiveness of Japan's manufacturing industry, we applaud the move by the government and the Bank of Japan to correct the yen's strength," carmaker Honda said in a statement.

Honda's shares closed up 4%, while Sony, another big exporter, ended 4.2% higher.

Toyota has estimated that every one-yen rise versus the dollar reduces earnings by about 30bn yen.

A recent government survey suggested many companies were considering moving production overseas if the yen stayed high.

Lasting effect?

Despite broad support for the intervention, there were doubts about its lasting impact without action by other central banks.

"The effect from Japan's solo intervention won't last very long. We have to see how the US and European monetary authorities react," said Yuji Kameoka, chief forex strategist at Daiwa Institute.

When asked about the currency intervention, Jean-Claude Juncker, chairman of the Eurogroup said: "Unilateral actions are not the appropriate way to deal with global imbalances."

Others also stressed the importance of support from Japan's fellow G7 members, as Japan's last major intervention into the markets in 2004 met with critical comments from the then-US Federal Reserve chairman Alan Greenspan.

If repeated, currency strategist Simon Derrick said, "not only would this prove embarrassing, such criticism would run the risk of also undoing the work that they had already done".

The record low for the dollar is 79.75 yen, reached in April 1995.



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7:40 AM

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Industrial output growth slows &#40;Reuters&#41;

Addison Ray

WASHINGTON (Reuters) � Industrial output rose at a slower pace in August and a measure of New York state business conditions slipped to the lowest level in more than a year, according to data on Wednesday that suggested the economy was cooling but not stalling.

Industrial production rose 0.2 percent in August, matching economists' forecasts for a sharp slowdown from July when unusually strong auto manufacturing lifted output, Federal Reserve data showed. July's gain was revised down to 0.6 percent from 1 percent.

Excluding motor vehicles and parts, total industry output increased 0.4 percent in August, compared with July's 0.3 percent advance.

Separately, the New York Fed's "Empire State" general business conditions index slipped to 4.14 in September from 7.10 in August. September's reading marked the lowest since July 2009 and was below market expectations for 8.0.

Economists often look to the Empire State report as an early gauge of national output patterns because it is one of the first data points released each month.

Beneath the disappointing headline, however, some economists saw cause for optimism in higher readings on new orders and the average workweek.

"We see this report as consistent with our view that manufacturing has downshifted to a lower pace of growth but not stagnated," Barclays Capital economist Nicholas Tenev said.

Another report from the Labor Department showed import prices increased 0.6 percent after rising by a revised 0.1 percent in July. Analysts polled by Reuters had forecast import prices rising 0.3 percent last month from a previously reported 0.2 percent gain in July.

Markets largely ignored the reports, focusing instead on developments on the foreign exchange markets, where the U.S. dollar jumped from a 15-year low against the yen on Wednesday after Japan intervened to sell the yen for the first time in six years.

Analysts were still encouraged that the New York state manufacturing index had not dropped below zero, which would have signaled a contraction in factory activity.

"The Empire manufacturing index was slightly weaker-than-expected, but did not fall below the zero line, further diminishing concerns about a double dip," said Jonathan Basile, an economist at Credit Suisse in New York.

The survey showed employment continued to improve.

Although import prices rose sharply in August, the annual increase of 4.1 percent was the smallest advance since November.

August's monthly rise reflected a 2.1 percent rise in the price of imported petroleum and petroleum products, the largest since April, after a 0.9 percent increase in July. Excluding petroleum, import prices rose 0.2 percent, reversing the prior month's 0.2 percent decline.

Prices of imported foods jumped 2.2 percent from a 0.1 percent rise in July. There were also increases in prices for industrial supplies and materials.

The Labor Department report showed export prices rebounded 0.8 percent last month after slipping 0.2 percent in July. Export prices were boosted by a 4.3 percent jump in food prices, the biggest rise in 14 months.

Analysts had expected export prices to gain 0.2 percent. Compared to August last year, export prices rose 4.1 percent.

(Reporting by Lucia Mutikani and Emily Kaiser in Washington and Wanfeng Zhou in New York; Editing by Neil Stempleman)



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7:13 AM

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Industrial output growth slows

Addison Ray

WASHINGTON | Wed Sep 15, 2010 9:47am EDT

WASHINGTON (Reuters) - Industrial output rose at a slower pace in August and a measure of New York state business conditions slipped to the lowest level in more than a year, according to data on Wednesday that suggested the economy was cooling but not stalling.

Industrial production rose 0.2 percent in August, matching economists' forecasts for a sharp slowdown from July when unusually strong auto manufacturing lifted output, Federal Reserve data showed. July's gain was revised down to 0.6 percent from 1 percent.

Excluding motor vehicles and parts, total industry output increased 0.4 percent in August, compared with July's 0.3 percent advance.

Separately, the New York Fed's "Empire State" general business conditions index slipped to 4.14 in September from 7.10 in August. September's reading marked the lowest since July 2009 and was below market expectations for 8.0.

Economists often look to the Empire State report as an early gauge of national output patterns because it is one of the first data points released each month.

Beneath the disappointing headline, however, some economists saw cause for optimism in higher readings on new orders and the average workweek.

"We see this report as consistent with our view that manufacturing has downshifted to a lower pace of growth but not stagnated," Barclays Capital economist Nicholas Tenev said.

Another report from the Labor Department showed import prices increased 0.6 percent after rising by a revised 0.1 percent in July. Analysts polled by Reuters had forecast import prices rising 0.3 percent last month from a previously reported 0.2 percent gain in July.

Markets largely ignored the reports, focusing instead on developments on the foreign exchange markets, where the U.S. dollar jumped from a 15-year low against the yen on Wednesday after Japan intervened to sell the yen for the first time in six years.

Analysts were still encouraged that the New York state manufacturing index had not dropped below zero, which would have signaled a contraction in factory activity.

"The Empire manufacturing index was slightly weaker-than-expected, but did not fall below the zero line, further diminishing concerns about a double dip," said Jonathan Basile, an economist at Credit Suisse in New York.

The survey showed employment continued to improve.

Although import prices rose sharply in August, the annual increase of 4.1 percent was the smallest advance since November.

August's monthly rise reflected a 2.1 percent rise in the price of imported petroleum and petroleum products, the largest since April, after a 0.9 percent increase in July. Excluding petroleum, import prices rose 0.2 percent, reversing the prior month's 0.2 percent decline.

Prices of imported foods jumped 2.2 percent from a 0.1 percent rise in July. There were also increases in prices for industrial supplies and materials.

The Labor Department report showed export prices rebounded 0.8 percent last month after slipping 0.2 percent in July. Export prices were boosted by a 4.3 percent jump in food prices, the biggest rise in 14 months.

Analysts had expected export prices to gain 0.2 percent. Compared to August last year, export prices rose 4.1 percent.

(Reporting by Lucia Mutikani and Emily Kaiser in Washington and Wanfeng Zhou in New York; Editing by Neil Stempleman)



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6:24 AM

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Dollar/yen soars as Japan acts to curb yen gains

Addison Ray

By Jessica Mortimer

LONDON | Wed Sep 15, 2010 9:04am EDT

LONDON (Reuters) - The dollar leapt more than two yen from a 15-year low on Wednesday after Japan intervened to sell yen for the first time in six years but analysts said the authorities could face a tough task in stemming yen gains.

The solo intervention helped propel the euro, Australian dollar and sterling sharply higher against the yen though traders doubted Japan had bought anything other than dollars.

Kyodo news agency cited a senior finance minister official saying Japan had intervened during European hours and would do so again during New York hours if needed. However, analysts said Japan's authorities would have to counter significant upward pressure on the yen, particularly if speculation of more U.S. quantitative easing continued. This could further narrow the gap between U.S. and Japanese yields -- a key factor in recent dollar/yen weakness.

"Flows into the yen are very strong, and the Japanese authorities will have to offset those flows in order to prevent further yen appreciation," said Ian Stannard, currency strategist at BNP Paribas.

"A sustained upward move in dollar/yen is unlikely unless U.S. rate expectations start to rise."

At 1159 GMT (7:59 a.m. EDT), the dollar was up 2.9 percent at 85.48 yen, near a high of 85.72, according to Reuters data.

The Bank of Japan acts for the Ministry of Finance in intervention, which traders said continued in the Asian and European sessions after an initial bout at around 83 yen per dollar shortly after the dollar hit a 15-year low of 82.87 yen.

During the European session, traders reported buying of dollars in the 84.95/85.00 area and at 85.25 on trading platform EBS, before strong offers above 85.50 capped the move.

The euro was 2.7 percent higher at 110.86 yen. Earlier it briefly entered its Ichimoku Cloud, an indicator of momentum and future areas of support and resistance, at 111.01.

"I think we're now going to see persistent official buying of dollar/yen in the near-term," said Adam Cole, head of currency strategy at RBC Capital Markets.

Some stop-losses were reported at 85.75 yen, but technical analysts said the focus remained on the downside while dollar/yen held below key resistance at 86.40, which is the bottom of the Ichimoku Cloud.

DECISIVE STEPS

Sources familiar with the matter said the BOJ was ready to leave the intervention unsterilized rather than draining the funds that went into the currency market.

Japan's authorities aim to stop the yen's rise from hurting exporters and the economy. Prime Minister Naoto Kan said the intervention had achieved some effect but that foreign exchange moves were being watched with urgency.

Finance Minister Yoshihiko Noda said Japan acted alone.

Implied dollar/yen volatility was higher with the one-month

trading around 12.50 percent up from 12.3 on Tuesday but well below year-to-date highs seen in May near 18.00.

Risk-reversals, the premium required to hold a put or a call in a currency, were showing less of a bias for yen calls. The one-month 25-delta stood around 0.70 for yen calls compared with 1.50 on Tuesday

The Bank of Japan started buying the dollar at around 10:30 a.m. (0130 GMT) on Wednesday.

Traders cited market estimates that the latest intervention amounted to around 1.5 trillion yen ($17.67 billion)

"Speculators have been long of yen so there is scope for further yen selling. But there's skepticism over whether the Japanese can change the trend as fundamentals haven't altered," said Beat Siegenthaler, FX strategist at UBS.

The yen gained fresh momentum on Tuesday after Japanese Prime Minister Naoto Kan won a leadership ballot against a rival seen as more willing to intervene to weaken the currency.

The euro was down 0.1 percent versus the dollar at $1.2977.

(Additional reporting by TOKYO markets team and Neal Armstrong in London)



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