A reduction in VAT is puerile politics and economic sabotage
Labour is supposed to be the ‘party of the poor’. It professes to be concerned with social justice and alleviating the plight of society's most vulnerable. But it is nothing of the sort. While unemployment reaches 2 million, and is projected to head inexorably towards 3 million by 2010; while house repossessions increase by 12 per cent, and are projected to make tens of thousands more homeless over the coming year; while the income of the nation’s poorest falls in real terms against rates of inflation higher than the increases in benefits or salaries; while thousands of families face a Christmas of worry about mortgage rates; while pensioners freeze, unable to heat their homes adequately due to spiralling fuel costs, it is reported that the Prime Minister and Chancellor of the Exchequer have decided to reduce VAT from 17.5 per cent to 15 per cent – the minimum permitted by EU directive – in order to ‘stimulate the economy’.
So, the chocolate bar in your Christmas stocking that would have cost you £1 will now only cost you 97.75p, which retailers will round up to 98p – that is, if they bother passing on the reduction at all. And if you buy quite few chocolate oranges, your savings could be as much as 10 or 15p. A litre of petrol might fall by a penny. Your bottle of wine might be 20p cheaper, or your average saving on a laptop might amount to £7.
This is paltry.
Cranmer is all for cutting taxes, but only when it is prudent to do so.
Reducing VAT at the present time is not only insulting to the intelligence; it fails to bring relief to the poorest in society in the same way as a cut in income tax (or a raising of the tax thresholds) would. And such a reduction in the burden of taxation would then leave people with more money to do with as they thought best. It would be tax relief to encourage individual financial responsibility. But the Chancellor’s ‘stimulus’ does not assist with personal debt repayment, and neither is it an encouragement to reduce that debt or to budget carefully for the future. In fact, it is designed to entice us to spend more, because the only people to benefit will be those who spend more. This ‘stimulus’ amounts to nothing more than more debt-fuelled growth, which is simply stoking those same high levels of debt which were the cause of the ‘credit crunch’ in the first place.
Cranmer is not remotely persuaded that retailers will go through a costly and time-consuming re-pricing exercise - especially so close to Christmas - or that businesses will be concerned to pass on such minuscule reductions for minimal gain to their customers. In fact, such a reduction in the turnover tax is likely to be pocketed by businesses, thus simply increasing their own profits.
As the nation’s debt reaches £100 billion, this impoverished Labour Government is bringing forward the Budget with a raft of announcements which will make next Christmas even more miserable, and the one after positively Dickensian (and not in the romantic sense).
What people need is security for the future, while these temporary measures simply white-wash over the nation’s crumbling finances and conceal the decay at the heart of Labour’s economic policy.
And the real worry is that a Conservative government, having won the coming general election on a narrative of ‘change’ and ‘hope’, will be faced with the harsh reality of balancing the books.
While Labour’s VAT reduction to 15 per cent will have little impact on people’s spending plans and will scarcely be noticed by the people, a Conservative VAT increase to 22.5 per cent in 2011 - to offset a budget deficit which is likely to be around £120 billion - will have considerable negative impact and will most certainly be noticed by the people. And neither will it be quickly forgotten – rather like VAT on fuel, or ‘Black Wednesday’.
And the thought of the next Conservative government constantly blaming the past Labour administration - while it may be justified and true - will simply become a tiresome mantra to the electorate.
This temporary tax cut is more about entrenching a client state of the permanently impoverished, permanently dependent and permanently eternally grateful to Labour for whatever crumbs are thrown at them. It is a tax-payer-funded subversion of democracy.
Is Gordon Brown simply stoking the nation’s debt and wrecking the economy simply to sabotage the prospects for success of the incoming Conservative administration?