Home > General Politics > Balls 1 – 0 Osborne

Balls 1 – 0 Osborne

Boris Johnson has echoed plans to scrap the 50p tax on people earning £150,000 and above to give London a chance to compete with foreign cities.

He said the same in late 2010, noting the tax ‘can’t go on forever’ if London is to remain competitive as a world financial centre.

But the idea is being floated again now growth figures are on the go-slow, and the suspicion is that Boris’ plea is not a noble one to get London booming again (?), but because the rich, who he is a representative of, want to remain so.

If this is too suspicious for you, then fine. But what is the thinking behind reducing this tax, over say freezing VAT, in order to drive up consumer spending?

Research group Acxiom claimed in 2009 that rich consumers – earning over £45,000 a year and who tended to spend more than £90 a week at Tesco, Waitrose or Sainsbury’s, now shifting towards low-cost brands at Asda, Morrisons, Aldi and Netto – were the ones cutting back; perhaps this informs latest thinking?

But I doubt many would say that the possibility of the kind of QE Vince Cable alluded to recently is informed by a lack of higher earners spending money.

Instead poorer consumers, the ones most affected by inflation and the 20% VAT, need more money in their pockets.

Such was the message of Ed Balls, when in June called on Osborne to freeze VAT.

If Osborne had listened to Balls, perhaps growth this quarter would not have looked much different, but that of next quarter may have – that is unless there are too many leaves on the train track, or the wrong type of sunny days.

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  1. Edgar
    July 27, 2011 at 5:27 pm

    The argument from the left seems to be that because jobs are insecure through ConDem Austerity and the Tories have talked down the economy people are afraid to spend and will try to save and/or pay off debt. While the 20% VAT rise appears counterproductive I do not see how the left can argue it would have made a fundamental difference. Only some serious Keynesian demand management would have seen to that and I don’t see that in Ed Balls plans.

    The Tories are banking on miracles (blind ideology to give it its proper title) I think, they hope for export led growth and some boost from the Olympics or something.

    • July 27, 2011 at 5:47 pm

      I can’t really speak on behalf of Ed Balls for obvious reasons, but the difference between his campaigning for a VAT freeze and, say, Cable’s printing money, seems to be that only the former, and not necessarily the latter, will resonate with people, hence his focusing on how individuals will be grateful to see the difference and have more money in their pockets, as he repeatedly said in June at the LSE.

      There’s little growth, there’s little promoting growth, there’s a regressive continuation of 20% VAT, and the big idea is scrapping the 50p tax on high earners (see also http://liberalconspiracy.org/2011/07/27/theres-no-simple-way-out-of-this-economic-rut-for-the-left-or-right/ ). There is a lot needs to be done to the economy, but small things like a VAT freeze will help, and that, I guess, is Balls’ thinking. As Duncan Weldon said in his Liberal Conspiracy piece, this is not the be all and end all, but it will be a marked difference for lower and middle earners feeling the pinch at the moment.

  2. Edgar
    July 27, 2011 at 8:27 pm

    When I go to the big shopping centres I am struck by all the closing down sales bargains to be had. I just don’t see how the 20% VAT thing is so crucial. I thinks this is political window dressing. I do recognise that VAT is a regressive tax and am against the rise for this reason. But it hardly scratches the surface.

    Balls is paralysed by being stuck in the centre ground quicksand, I find this undermines his criticisms of the odious Osbourne.

    • July 27, 2011 at 10:19 pm

      Well true on the centre ground thing, he’s nothing on his pre-Labour leadership election self

  3. Mike
    July 27, 2011 at 11:59 pm

    VAT reduction is a direct injection of cash into the economy. Low-incomes spend this money, rather than saving it (multipliers, etc). Governments can do it immediately and it has immediate effect, unlike infracture spending which takes years. In contrast, QE recapitalised banks and further inflated stock market and house prices (both currently about 50% over-valued).

    Under Labour, VAT cuts were one of several measures. And lets face it kiddies, they were working. There was a recovery.

    • July 29, 2011 at 12:30 pm

      Precisely so, and this is the main hook – not only is it effective, it’s relatively easy for government to do, and fast.

  4. JayJ
    July 29, 2011 at 4:53 pm

    Low income families would spend the money under normal conditions but under conditions of cuts and mass job insecurity it is unlikely to work. The New Deal, for example, was a mass jobs programme, this is tinkering at the edges me thinks.

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