VAT is not the issue
In a fit of lunacy the Shadow Chancellor suggested that, in order to stimulate the economy, George Osbourne needs to cut VAT. Right. Because that worked so well for Labour when they did it in 2008…
Now, I’m all in favour of stimulation, getting people shopping again and generally lifting spirits, but bizarrely I don’t believe tax cuts are the way to achieve this.
The problem is quite straight forward: we have a massive hole in our country’s bank balance and promises of tax discounts simply won’t make a big enough difference to encourage the populace to get out there and spend what little money they have.
Thirteen months after Labour cut VAT to 15% it was returned to 17.5% and, shortly after coming to power, David Cameron’s government were forced to put it up to 20% in order to reap back the losses.
I’m not saying that I think the coalition are doing a great job, because I’m not sure they are at the moment, but they weren’t exactly left with a pot to pee in to try and fix the problems they inherited, were they?
And let’s not forget that, in order to help allay some of the losses reducing VAT would make, Chancellor Darling increased Alcohol Duty to the effect that the licensed trade were simply unable to pass any savings on to their customers – not that the general public realised that: they thought we were all making a couple of pence extra in our pocket rather than reducing the price of a pint.
Unsurprisingly, that hike in Duty was not rescinded when the level of VAT returned to 17.5%...
What the British public are desperate for at the moment is some stability. Rather than cutting tax, why not just cancel any hidden automatic tax rises and promise not to put UP duties in the Budget this year? Starting, I suggest, with that infernal Alcohol Escalator.
It was a brilliantly sly piece of legislation by Darling but it’s been going on far too long now and means we’re already hearing from the powers that be that there will be no change to Alcohol Duty in this year’s Budget; this “no change” will result in a damaging automatic rise of around 7%.
What will get the general public out spending again won’t be the promise of a couple of pence off general goods but the knowledge that when they take their car for petrol, buy their packet of cigarettes, purchase their bottle of wine or replace their ailing washing machine, the price won’t have gone up.
It would help retailers keep their prices competitive, it would develop confidence in the consumer, and it would mean that George Osbourne’s team won’t be sitting scratching their heads in bemusement when not enough people have spent more to cover the reduction in tax they were promised.
Sadly, though, like most politicians Ed Balls doesn’t appear to really understand what motivates the voters. He will simply think that by saying VAT should be cut everybody will forget what a cock up it was last time and say what a great guy he is. Well I won’t, unless he says VAT should be abolished completely.
But then we’ll go the way of Greece…
