Posts Tagged ‘VAT’

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.

Categories: General Politics Tags: , , ,

A reaction to Osborne’s growth budget

Budgets are not allowed to be bad news – ever – but there is nothing to be happy about at the moment. So instead the chancellor has to hide bad news in other ways. Great news that there will be 40,000 more apprenticeships, but what jobs on the other side? Fuel duty cut from 6pm tonight will be great for everyone, including small businesses, but a 3p rise in the VAT has meant that the 1p cut will be recovered.

This budget was set to direct its nods in the right direction: in areas where growth is needed most, and abroad to places that may be put off by the UK having higher rates of corporation tax.

To the former Osborne announced 21 new enterprise growth zones, the first 10 in Birmingham, Solihull, Leeds, Liverpool, Greater Manchester, Teesside, the Black Country, Derbyshire, Nottinghamshire and Sheffield (one will also be planned for London, the location of which will be at the discretion of Mayor Johnson). That along with the 2bn funding injection for green investment banks, and money saved from decreasing business regulations for smaller businesses, looks set to curry favour with small and medium sized enterprises (SMEs).

The latter group, companies abroad looking to set up shop in the UK, have been incentivised with a reduction in corporation tax to 23% in the next three tax years – 16% lower than the US and 11% lower than France. Big business will profit from the reduction too, but the hike in bank levy will offset that reduction to those businesses affected by it, increasing as it will from 0.05% to 0.078% from 1st January 2012.

Ed Balls, the shadow chancellor, on the BBC, is however noting that oil companies may feel the need to pass their tax rise on to consumers which will raise the price in fuel anyhow.

Furthermore, Osborne said income Tax relief on Enterprise Investment Schemes will increase from 20% to 30% in April 2011.

But, of course, there will be losers as well.

As Will Straw spotted today “the OBR anticipates an additional 130,000 people will be unemployed in 2012.” Does the government expect SMEs to be able to cater jobs for all those extra unemployed people?

As George Eaton at the New Statesman said today, the Daily Mail have it that tax cuts “will benefit millions to the tune of £320” which has been a figure taken from the rise in the tax threshold by £1000 (£7,465, worth £200 to basic rate taxpayers). However, again according to Will Straw, the real figure will actually be more like £120, and in any case “the entire tax cut will be swallowed up by the VAT rise, rampant inflation of 4.4 per cent and higher National Insurance.”

Sunder Katwala today spotted that in 2005 David Willetts, now Minister of State for Universities and Science, said the tax stream that is the most unjust for the poorest of society is not income tax, rather:

The poorest 20 per cent of households sacrifice 28.5 per cent of their income in indirect tax, of which the biggest single item is VAT.

If that is the opinion of a cabinet minister, why hasn’t a budget announcement aiming to protect jobs and growth done anything to safeguard the worst off?

Also, it is not clear how the government plans to protect non-earners such as many pensioners from losing out on the plans – confirmed today, but not enacted yet – to merge national insurance contributions with income taxation, though Osborne has pledged to go to consultation on this.

Lots of smiles and waving gestures have been shown to small businesses by the chancellor, but the many losers in his budget will realise that growth and jobs are still a guessing game for this government. As Brendan Barber has just said on BBC news, this budget announcement is trying to be “steady as she goes, but she is going down … we need a change in direction”.

(See also this from Bright Green Scotland on the budget: Retro Shock Doctrine as Thatcher’s Enterprise Zones return)

On Enterprise Zones: “They are a microcosm of the anarchocapitalist conditions Tories ultimately want to see applied to the whole country; they are laboratories, showrooms, and a grateful present to corporate masters.”


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