Archive for the ‘Darling’ Tag

What a missed opportunity

Oh dear oh dear.

The Chancellor of the Exchequer has presented his mini-budget, PBR, Autumn Statement or whatever you like to call it. It’s a proper mishmash of things, and while his intentions are right, what he’s done won’t work. Probably. I hope it does, but I really don’t think it will.

The headline change is the cut in VAT to 15%. This is supposed to get us out spending again, but as many people have already commented, its effect will be marginal – except on the government’s finances.

The aim of any Chancellor, doing this stuff, is to get the biggest bang for the buck. What  tax changes will change the way people behave, yet result in the smallest loss to the Treasury? Well, a 2.5% cut in VAT will have almost no effect on the way people behave, yet will result in a considerable loss to the Treasury.

The cost of the change is more than £11bn. That’s how much less VAT the government will collect next year. But will a 2.5% change in the ticket price affect your decision to buy a new frock, a drink, a holiday, a kitchen appliance or a theatre ticket? If you are facing the prospect of unemployment, or are unemployed? You’ll hardly notice it. For small items, the change is pence, hardly worth retailers’ time to change. For large items, it still pales into insignificance compared to the practice of commercial discounting. A totally fruitless exercise, costing the taxpayer £11 billion which will have to be repaid sometime later.

The other thing that the Chancellor has done is to bring forward £3bn of capital expenditure to FY 2009/10 from FY 2010/11.  This is, generally speaking, a good thing. Capital expenditure by the government creates jobs in sectors such as construction which have been badly hit by the property downturn.

It would have been far better to keep VAT at its current level, and invest £11bn in the nation’s infrastructure. Properly funding a programme of home insulation grants, not for 60,000 households, but for 600,000, for example.  Or  kickstarting an offshore wind development, which could be privatised as soon as the capital markets recover – making, no doubt, a tidy profit for the state at the same time.

But a pointless cut in VAT generates more headlines, and has no doubt been calculated to produce more poll points than anything else.

We despair.

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