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The cuts begin in April: our guide to the spending squeeze

The bulk of the government's measures to raise more cash from us come into effect in April. Lorna Bourke summarises what to expect.

 
The cuts begin in April: our guide to the spending squeeze

The bulk of the government's measures to raise more cash from us come into effect in April. Lorna Bourke summarises what to expect. 

The squeeze truly begins in April. A wide range of tax rises and benefit cuts – which have already been announced but have not yet been implemented – will be introduced.  Many families will start to feel the pain with tax credits and other benefits being reduced while tax rises will hit many middle income families.  

But first the good news.  Low paid workers will benefit from the biggest single increase ever in personal tax allowances – the amount of income you can receive before becoming liable for tax.  The basic allowance will go up from £6,475 to £7,475 in 2011-12 taking 880,000 people out of the income tax system completely. Basic rate taxpayers will be up to £200 a year better off.

Brace yourselves

But that is the end of the good news. Here is what to expect:

1.  To pay for larger personal tax allowances the starting threshold for 40% tax is being reduced from £43,875 to £42,475 which means up to an extra £280 on tax bills for those earning above the new lower 40% threshold.   An estimated 750,000 taxpayers will be affected.

2. There will also be a 1% increase in National Insurance contributions pushing the rate up from 11% to 12% for those earning up to the 40% tax threshold and from 1% to 2% on earnings above this threshold.  The self employed will see their rate go from 8% to 9% on earnings up to £42,475 and from 1% to 2% on income above that level.

3. Families with children will be hit as Child Benefit is frozen at current levels for three years - £20.30 for a first or only child and £13.40 for subsequent children.  With RPI inflation running at 5.1% this is a big cut in real terms.  From January 2013 Child Benefit will be abolished for families where at least one parent is a higher rate taxpayer.  In addition, from September of this year the educational maintenance allowance, worth £30 a week for low income students aged 16-18 who stay in education, is also withdrawn. Even worse, university tuition fees rise to a maximum of £9,000 in October 2013 which will put higher education beyond affordability for many.

4. Wealthier homebuyers will be hit by the introduction of 5% Stamp Duty on homes worth more than £1million from April 6th.  As Stamp Duty is paid on the whole purchase price once the value moves above a threshold this means that Stamp Duty on a £1.1 million house will rise from £44,000 to £55,000. The middle classes, in particular homeowners, will also be hit by the freezing of Inheritance Tax nil rate band which will remain at £325,000 until 2014/15. IHT is levied on death at 40% on the excess over the nil rate band.

5. Motorists are likely to spend more time at home or using public transport as rising fuel duty at inflation plus 1% starts to take effect from April while an increase in alcohol duty, set to rise by inflation plus 2%, will take its toll.

6. Those working in the public sector who earn more than £21,000 a year will be hit by a two-year pay freeze which begins in April – although some teachers and police will receive pay increases, which were contractually agreed, until September of this year.  Low earning public sector workers have been told they will be given a flat rate pay rise worth £250 in total in both years when higher earners’ pay is frozen.

7. Nobody will be exempt from the cuts.  For lower income families, there is an across the board reduction in benefits from April when the Consumer Price Index  (CPI) will be used to uprate all tax credits as well as many other benefits.  Increases in the CPI are generally lower than rises in the Retail Prices Index to which many benefits were formerly linked.

8. Tax credits for working families are to be reduced and phased out for those earning £40,000 a year or more when they will start to have their family element of £545 a year tapered away.  Currently families with incomes up to £58.000 a year can be eligible for tax credits.  The withdrawal or ‘taper’ rate for tax credits will increase from 39% to 41%.   In future claimants will lose 41p instead of 39p for each £1 of income above certain thresholds or a further £20 for every £1,000 of income. Meanwhile, the tax credit income disregard will be reduced. The first £25,000 of any income increase is disregarded when calculating tax credits but will be reduced to £10,000 from April 6th.

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35 comments so far. Why not have your say?

Debt-free

Mar 02, 2011 at 12:08

Following on from the point about housing benefit: from April landlords will be worse off due to the reduction in market rents brought about by Housing Benefit cuts.

Oh, and house values will go down because of all the other points listed, along with a thousand other factors....

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In the Dark

Mar 02, 2011 at 12:45

This is great news on cutting the subsidies to the populace at large. Unfortunately, they do not go far enough, the allowance for the first child should have been withdrawn and the personal allowance should have started at £10,000 and have been transferable for married couples.

Tax should be simplified big time. The socialists made a hash of the economy, all the investment spouted by Gordon has retuned nothing but misery.

The next cuts should be on the politicians and their bureaucracy. The Welsh assembly is not required as indeed the Scottish parliament. Dissolution of the European parliament would save us a few pounds as well good health cut to the common agricultural policy.

Feather bedding the politicians is not good for democracy and our wealth. So bring on the cuts were all in this together, we are aren't we Mr Politician?

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White Stick follower

Mar 02, 2011 at 13:01

The additional £1,000 Personal Allowance is for workers under 65 only. Presumably the Government has decided that there are no workers over 65- putting aside that at the same time it has decided to gradually increase the retirement age.

Some may refer to the 65-74 bracket as already generous, but if anyone over 65 has income above this bracket they pay tax @50% on the excess on the count back system.

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Philip Swift

Mar 02, 2011 at 13:45

This reads like the government is doing lots. They are, but its all cuts on the public. Where is the huge bureaucracy of 'the government machine' including MP's researchers and staff, the civil service and quango's going to be cut. Cut, not tinkered with at the edges, but cut. These tax hikes and reduced allowances when combined with the real inflation which is taking hold again takes effect the impact on hard working families is real and painful.

It's well and good 'left leaning academics' say we need to correct the disaster left by Gordon and his criminally insane sidekicks but how will we correct the deficit when there is no incentive to grow business, take risks and spend when everything Dave and the boys do is about cutbacks and retrenchment?

Unless they do something to encouage spending and job creation its gonna be a disaster.

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dd

Mar 02, 2011 at 13:59

"there is no incentive to grow business, take risks and spend"

Absolutely. I reckon that small businesses should be exempt from all the regulations which cripple their creation or their growth. Maternity leave, Paternity leave, Nest, Paperwork, VAT, etc etc. Potential employees would need to be alerted to this lack of provision - but depending upon their own circumstances, maybe they would be prepared to put up with that and would prefer to have the job anyway because it is better than their current activity.

We desperately need to support small businesses. I bet that some of those energetic young people as well as the oldies would be keen to give it a go, if they were not actively discouraged by all the legislation to wrap all employees in cotton wool at every stage of life.

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Striker

Mar 02, 2011 at 15:17

As a small business-owner and lifelong Conservative I am really worried about the effect all these tax increases and cuts are having/going to have on the Economy. Business levels are already suffering badly for most small firms likes ours, and Osborne's plans, although admirable in theory, are likely to be devestating in practice, as many people simply stop buying non-essential purchases due to the hole in their finances. That idiot Gordon Brown recked the Economy and Osborne's solution should be much more cutting in the Public Sector and much less taxation in the Private Sector (the one that actually creates wealth in the first place!)

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Daye Tucker

Mar 02, 2011 at 15:32

Truly "in the dark"? Think about it, if you did the opposite with the Scottish Parliament and let Scotland govern itself, some might say it would save you money.

Released from the false security of dependency on the public sector, who knows the entrepreneurs might start to move out of their comfort zone and truly contribute to the economy.

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redfish

Mar 02, 2011 at 16:40

At the same time as these cuts we have referenda on AV and increasing the power of the Magic Dragon hot air shop in Cardiff (Welsh Assembly to those of you who, although paying for it, do not know what it is) How about a referendum on EC membership...or hanging for murder erm No. No money for such nonsense and do not derail the EU politician gravy train for heaven's sake!!!

As to the student fee issue. Why not? These are supposed to be our bright future but they cannot work out that they can have far better job prospects with a good degree than without and are merely investing in themselves as a saleable commodity. The £21,000 a year payback level forms a good safety net.

Moving on to the NHS MOD and EA. Print more P45s using a private printing company that will deliver on time at a fixed price, not to the managing mandarin class, rather to some of the cash strapped soldiers and doctors who a) know how to shoot straight and b)cut leaving the good bits only.

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john

Mar 02, 2011 at 18:35

Yet another government that says one thing before an election then does another after. Yes the deficit has to be reduced , but we all remember the rhetoric before the election . " biggest cuts sinec Margaret Thatcher " etc etc. 20% increase in taxation and 80% cuts in public spending was to be the mix for the cuts.

The reality ? 50/50 i.e a 50 % increase in taxation not 20% ( John Redwoods figures ) And Mr Cameron knew this was impossible politically when he discussed it and always its us the middle classes who take the hit . Havent we been hit enough by GB ?

Now I know why Cameron was given the job as PM - his PR skills - the art of making issues like this acceptable , in this case he is blaming the coalition. The same coalition that has 5 times as many Conservative MP as LIb Dems .

and they wonder why most of us hold them in such contempt ?

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David Evershed

Mar 02, 2011 at 20:25

Lorna re point 1

Surely the lowering of the 40% tax threshold is just to offset the increase in the personal allowance and is therefore neutral - not an extra £280 of tax?

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normski

Mar 02, 2011 at 20:39

I really do,nt know why young people want to stay in this counyry the future seema grim.

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Jon Gallagher

Mar 02, 2011 at 21:05

And amidst all these cuts and ongoing suffering of the British people the overseas aid budget increases as does our contribution to Europe. We have no money but we are giving billions and billions to other countries. I was susprised to see we give tens of billions in aid to India, Pakistan and China - crazy. When are we going to get a government that serves our citizens first and foremost instead of other countries. This aid has been going on since the days of Bob Geldof and seems to having little impact.

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Jon Gallagher

Mar 02, 2011 at 21:09

Following on from my previous comment, it will be interesting to note how many countries will queue to give us aid when we become a third world country. I agree with Normski, this country is well past its prime, is a complete shambles due to the last labour govt and it is going downhillfast from hereonin.

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dd

Mar 02, 2011 at 22:26

Quite agree with your last comment, Jon.but I hope that the downhill fast bit can be reversed. I reckon it could be if the red tape were removed from SMEs. By nature, I would be pro-Europe but sadly Brussels is the source of much of this red tape.

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82 yo

Mar 02, 2011 at 23:02

I am a life long conservative but shudder to think of the mess we are making of running this country at the moment - we have not had a Conservative Leader or Prime Minister worth his salt since Mrs Thatcher - when are we going to wake up ?

There is so much waste to cut before increasing taxation , it is unbelievable and we are doing none of this - we are penalising the small and middle income people because that is the easiest thing to do - if taxation was simplified you could cut the IR staff by half - the Guide Notes are many times longer than the forms to be completed ! Splitting hairs most of the time to no real gain in the revenue raised .

One could write a book - taxation is just an example - it would be a waste of time - David would say anything to please at the time and ignore it at the end of his speech - what a waste of time !

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Anonymous 1 needed this 'off the record'

Mar 02, 2011 at 23:09

lost for words...one goverment completly bankrupts us and the next wants us to pay off in ( 5 years ) the dept run up in the ( 13 years ) of labour...

not to mention labour signed off every contract it could.. before leaving office what a shambles...

gorden brown and his cronies are now still sitting there ...taking the mick out of the conservatives/liberals who are going over the top to clear the dept in 4 years so they can drop taxes in the 5th year to get re-elected,

AND STILL THERE RAISING VAT on petrol soon again that will increase inflation...( and asking the bank ) to write a letter to exsplain why inflation is over 2 % again.....MORONS...

what ever did we do to get a bunch of MP like we have now in all three parties..

i voted liberal last time but i can see they are realy consevatives..at heart...

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Grant

Mar 03, 2011 at 09:30

As a basic rate tax payer with no kids and no benefits I actually think I will be slightly better off, given the increase in personal allowance.

However, if the fuel duty increase is followed through I wouldn't imagine I will feel much better off.

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David Evershed

Mar 03, 2011 at 12:08

Anonymous 1

Please note that this Government is not proposing to repay any of the debt built up by the previous Labour Government. It is only proposing to stop the debt increasing after five years. During the next five years the debt will continue to increase.

The confusion arises because the annual overspending (which has to be funded by debt) is described as the deficit and it is the deficit which the Government is intending to reduce by the end of five years.

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Hugh Ball

Mar 03, 2011 at 17:48

I am basically pro Europe but there is one thing that is absolutely wrong and that is the the dual centres of power, Brussels and Strassbourg. Whoever heard of a company having two head offices in this day and age.

We could cut millions off the budget at a stroke.

Also, I absolutely agree with the comments about development aid. This is neo-colonialist, white man's burden type of thinking costing us £9 billion per year.

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Alan Hill

Mar 03, 2011 at 19:51

Has Cameron's cuts have forced the treasury to steal from pensioners and also encourage money grubbing banks to benefit from the DWP payments to pensioners through delayed transfers to pensioners bank accounts?

I recently turned 65 but I did not get a part week payment from my birthday to the Monday payday. I am assured I will receive 7 days pension 12 days after qualifying for my pension. I'm told the rules were changed after the last election. THIS IS THEFT FROM PENSIONERS. BUT DON'T MENTION POLITICIANS EXPENSES!

Also I found out that my weekly pension payment had alredy been made by the DWP, but it will not appear in my bank account for 5 days. ie next Monday. WHY? In this computerised age, surely the transfer should be done electronically and immediately - not floating about in the bank to make interest for the banks.

It really is too bad that ,where there is tax payers money ,there are lots of greedy sods aiming to make money from it with the complete co-operation of our government. Please explain these events to ameliorate the feelings that I'm being cheated.

BUT DON'T MENTION THE POLITICIAN'S EXPENSES THAT PROBLEM IS SUPPOSED TO BE SOLVED BUT THE EXPENSES STILL RUN TO £100,000'Spa. PER POLITICIAN!

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Philip Knudsen

Mar 04, 2011 at 14:06

I'm glad to hear that now you can only get a free £26000 in free money (benefits) each year. That's more than many hard working people earn in a year. £400 a week for rent is £1720 a month, that's really generous for free money. I go to work to pay for my bills and don't see why I should live off government hand outs. Perhaps I'm unusual in my expectations from the government?

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kevin L

Mar 05, 2011 at 09:58

Reduced benefits and tax allowances have to be a good thing because they are all funded by the tax payer (us). The higher the allowances and benefits - the greater our tax liabilites...

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Geof Wassell

Mar 05, 2011 at 10:14

And the banks who played no small part in the cause of all this will continue to laugh at our expense and pay themselves highly for making a total hash of everything other than their own profits.

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Chris Marsden

Mar 05, 2011 at 10:28

Why is there talk of £2 litre petrol, when the oil doubles per barrel when it is mainly tax, no need for the tax take to go up, that will kill off any recovery? Why should we suffer petrol 3 times the price in the US - it certainly is not a level playing field.

Perhaps higher oil will cause the US economy to stall? This is what one commentator says this morning about Stocks v Gold/Silver (which he favours).

Ending up saying the Dow (and the FTSE about the same) has lost 86% in 8 years in terms of Silver. Food for thought!

=================

"The US DOLLAR index, fossilized relic of socialism, totalitarianism, cronyism, and parasitism, backslid again today. Not much, 8.9 basis points, but it still drooped ending at 76.394.

On the weekly chart the dollar stands plumb astraddle the uptrend line from the 70.70 low in May 2008. One slip and Humpty Dollar plunges off the wall with only one obvious target: 70.70.

However, 'tis more likely that the buck will turn around and rally for a while. Yes, yes, I know I have been musing over that possibility for a while and it has never emerged, but the dollar's fall really has lost momentum. Assuming it doesn't violate today's 76.30 low -- assuming -- then my phantom rally might materialize.

Standing in the ghost's way is a rallying euro. The euro's strength ranks as yet more phantasmal and fantastical than the scrofulous dollar's. With about a third of its members teetering on bankruptcy and only the strong will of the ECB to bail out the French and German banks who've loaned these deadbeat governments money, the euro ain't exactly the Charles Atlas of currencies itself. Why it is rallying while North Africa disintegrates is a deep mystery. Technically, though, it broke out past its last high (1.3841), it stands above its 20, 50, and 200 day moving averages in that order, and if I tear the top off the chart and ignore all the rotten fundamentals, I have to say it will rally further.

When I say rotten, I mean it. You could grow mushrooms on the euro or the dollar. BIG mushrooms on the yen.

Mmmmmmm. STOCKS are falling on rising volume? What meaneth this sign? That the blade of the guillotine is speeding up. Stocks have now failed twice at their 50% correction of the 12,400 - 12,000 fall. This ain't baseball.

Worse yet, today the Dow closed BELOW its tripwire 20 day moving average (12,201), first warning of a downturn. Not far below lies the 50 DMA at 11,944.13, then support at 11,803 and 11,450. Right, 300 and 700 points below today's close at 12,166.40. Dow gave back 91.8 points today, down 0.75%. S&P showed itself a little worse, down 0.94% (10.02 points) at 1,320.95.

A remote chance remains that the Dow might rise once more to 12,400 for a double top, but that changes nothing. It will merely collapse from a higher level.

Stocks remain the burnt-orange leisure suit in the Investment Fashion Parade -- not cool.

Defeated yet again, the Dow in Gold Dollars (DiG$) has left off rallying and returned to its 200 day moving average, ready to roll off the curb and into the gutter. DiG$ is flashing clearly that stocks are about to lose big value against gold. The Dow in Silver ounces kept on making new post-2003 lows again this week, down to 344.5 oz from its 2003 high at 2,556.7 oz. A neat, clean 86.6% loss.

Y'all enjoy your weekend."

http://silver-and-gold-prices.goldprice.org/2011/03/gold-price-gains-mere-14-this-week-ill.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+SilverAndGoldPrices+%28Silver+and+Gold+Prices%29

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Timothy Skinner

Mar 05, 2011 at 10:30

"That idiot Gordon Brown recked the Economy and Osborne's solution should be much more cutting in the Public Sector and much less taxation in the Private Sector (the one that actually creates wealth in the first place!)"

EXACTLY SO.

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dd

Mar 05, 2011 at 10:55

Yes, and David Evershed's comment (12.08 on 3rd March) should be made clear to everyone.

The cuts are only dealing with the excess of spending over income. The country's debt is another matter.

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Lets Face It

Mar 05, 2011 at 11:34

Most of these comments are asking the same thing:-

When is the government and all of its enterage going to cut itself?

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Chris Marsden

Mar 05, 2011 at 15:14

If all these cuts are to stop it rising month by month, when do we pay it all off?

Who is it we are in hoc to, for all this money, and what security do they have - what threats are we subject to if things go wrong?

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dd

Mar 05, 2011 at 18:32

LFI: I agree, Turkeys and Christmas etc but:

- wasn't it the first thing that the cabinet did, to reduce their own salaries, a bit?

- the new MPs don't have the excessive "expenses" which the previous ones did. It was the system which was bad but many of the MPs who stood down or were not re-elected are the ones who have got away with it, not the current ones (generally speaking). I don't want to penalize the wrong guys.

- from a practical point of view, we need to stop banker bashing. We all know that there were some idiots at the top, knighted even, by Labour but we need to let the new leaders in banking get on with their business and make profits and PAY TAX, and EMPLOY staff and contribute positively to the country's GDP.

- As for cuts by councils, we hear about the cuts which affect children and the elderly. Maybe some cuts have been made in salaries or staff levels but these never make the news. Maybe someone could enlighten us.

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dd

Mar 05, 2011 at 18:54

CM:

I don't know the complete answer to your question but:

Some of the country's debt is owed to investors and to pension funds (mainly private sector) in the form of gilts. The country's (mainly private sector) pensioners who rely on income from their investments or income from an annuity in retirement.will not be happy if the gilts cease to pay interest or capital,

There are others whose income in retirement comes from current taxation and the taxation of our children's earnings when they grow up and (hopefully) find work. They would not be affected so directly or acutely but it would be a dire situation as we would be downgraded and unable to borrow.

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Chris Marsden

Mar 06, 2011 at 00:45

I suppose I should have Goggled it! "Who do we owe......" was enough.

http://www.whatdotheyknow.com/request/to_whom_do_we_owe_the_national_d?unfold=1#incoming-16552

It seems it is (or was 2 years ago) mainly UK Investors.

IF that is the case, and our credit rating was reduced from AAA, the interest paid goes up. So who benefits - the UK Pension funds and Insurance Co s - UNLESS the UK defaults!

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dd

Mar 06, 2011 at 09:42

For existing fixed rate gilts, the purchase price goes down rather than the interest paid going up, ie yield goes up. You get more for the capital you put in. That would be better for future purchasers but not for existing holders. Is that the right way around?

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Anonymous 2 needed this 'off the record'

Mar 06, 2011 at 11:04

I know loads of people who can't be bothered to look for a job (even in the boom times!). At last these people are going to get a kick up the backside.

For too long hard working indivuals have had to carry this work shy element of the population.

I am genuinely sorry for the genuinely unemployed and wish them good luck.

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Anonymous 2 needed this 'off the record'

Mar 06, 2011 at 11:06

Or and to add to the above. I was once a company director and I have taken cleaning jobs to survive !!!

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ms simpson

Mar 17, 2011 at 11:02

It has been has been a long hard struggle, but finally, political corectness and the `social services` mentality has resulted in the refusal to either seek work or education/training being accepted as a life style choice.I do not dispute that therwill be hardship caused to many people; but until we address and corect this idiotic state of affairs and institute a policy of light regulation linked to a tax system which encourages and rewards both hard work,risk and endeavour we will face an increasingly bleak future

If we do not confront reality ---- reality will very shortly confront us.

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