Tory VAT Bombshell

[Roger Fukwit]

I don't think an extra 2.5% will make any noticable difference to anybody. A ?25 pair of jeans will rise to ?25.54, a ?1 bottle of Coke will be ?1.02.
Even a ?750 TV will only be an extra ?16.
If this is what we have to do to help pay of the debts of this country then so be it.

[David Johnson]

"I don't think an extra 2.5% will make any noticable difference to anybody"

THe point is that VAT is a regressive tax. It hits those with the lowest incomes much more than the richest in society.

If you have bugger all coming in e.g. single bloke on ?60 per week jobseekers allowance or someone on a very low wage , then 2.5% does make a difference on those items that are on standard rate which are essential e.g. fuel, clothes, repairs to a car to get to work, repairs or replacement for electrical items like cookers etc etc.

A rise in income tax is a much fairer way of getting money in. If you earn a little more, you pay a little more. That way the impact is proportionally the same throughout. I don't know about you, but I have yet to come across anyone who has turned down promotion and an accompanying rise because income tax has gone up 2p.

CHeers
D

[Sarah Kelly]

The Economist,generally well regarded,had always been pro labour until the Tories suggested aggressive cuts,not increased public spending, would be needed to curb our spiralling debt problem....... and Labour tax rises? What on earth are they? .... They introduced so many taxes by stealth, It surprised me they didnt re introduce the old window tax,they brought in that many new taxes..... "no more taxes" - What a whopper that turned out to be...

[David Johnson]

Hi
I thought this was a thread on the Tory VAT bombshell, rather than a diatribe against the workshy. !happy!

"?170 better off is better than nothing and again the VAT increase only affects non essentials so food, childrens clothing, fuel etc remain untouced."

I am beginning to get bored with repeating myself. You are wrong in assuming that the standard rate only covers non-essentials. Got that? You are wrong.

For example, consider a young guy on the minimum wage who needs to have an old car to get to work. He rents an unfurnished flat.
He needs to replace a cooker so he can have hot food. He needs to get his car repaired. He needs to put fuel in the car on a weekly basis to get to work. He needs clothes. These are all standard vat items and essentials.

I repeat any advantage in ?170 extra will be more than wiped out by the VAT increases, the reduction in credits for both working and unemployed and the 25% cuts in departmental spend.

VAT is a regressive tax. It is not just me that says that. Cameron was quoted as agreeing, the Lib Dems campaigned on the Tory VAT bombshell etc etc.


Cheers
D

[David Johnson]

"The Economist,generally well regarded,had always been pro labour until the Tories suggested aggressive cuts,not increased public spending, would be needed to curb our spiralling debt problem"

Partly correct, mostly wrong. THe Labour party put out plans to half the deficit in 4 years. The Tory quango, the Office of Budget Responsibility recently set up by Osborne, has agreed that these plans would half the deficit in 4 years.

The Labour party were against introducing swingeing cuts, like the Tories have done in this budget THIS YEAR, because they thought it would lead to a double dip recession. The OBR agree with the Labour Party in that they have stated that Osborne's measures will both increase unemployment and reduce growth compared to the Labour Party measures.

If the enormous cuts introduced by the Tories result in large job cuts and millions cutting back their spending then we are into an economic depression.

Cheers
D

[Sarah Kelly]

and going the way of Greece would help,lol? I cant agree ... Obviously labour so mismanaged our finanaces that now,only a backward step is going to allow for us to take 2 forward....

[David Johnson]

Sarah,
The comparison with Greece is nonsense, though very convenient for the Lib Dem Cons who wanted to introduce swingeing cuts anyway.

THe reason that we are not Greece is as follows:

"The UK has less debt than Greece, has a stronger economy and as a result is not regarded by financial markets in the way Greece is. We are different from Greece in three key areas: the sustainability of our fiscal position, our policy flexibility and the origins of the debt crisis. Taking each of these in turn, it is possible to dispel the Greek myths the coalition uses for its hasty and unfair cuts.


First, from the point of view of the sustainability of our fiscal position, a nation's solvency critically depends on the amount of its outstanding debts; this is common sense. And as a percentage of GDP, national debt in the UK in 2009 was 72% while in Greece it was 119%. In other words, the amount of debt the UK bears in relation to the size of its economy is simply much smaller in the UK than Greece.

On top of a smaller debt burden, the UK is also much better placed to finance its borrowing. That's because not only does Greece have a higher level of debt, but it has more pressure to continually refinance that debt. The Financial Times puts the average UK debt maturity at 13.5 years, which compares with 7.9 years for Greece, 6.4 years for Spain, and 5.4 years for Ireland.

Further, UK debt is easier to finance because a large proportion, indeed the majority, is held and bought domestically, by pension funds and the like. In contrast, Greece has to find foreign buyers for the majority of its debt held ? a position that inherently makes the country more at the whim of the global markets.

Second, from a flexibility of policy response point of view, unlike Greece, we have control of our own financial affairs, with our own currency and a central bank that can set interest rates in the interests of the domestic economy. Over the last few years, the pound has depreciated by nearly 25%, making our exports more competitive and offsetting some of the effects of the recession. And the Bank of England has cut interest rates to 0.5% and added a further ?200bn into the economy through quantitative easing. Quite simply, Greece has not had ? and does not have ? these advantages.

But the ability of Greece to reduce its large deficit is compounded by a predicted, continuing recession. Compare this to the UK, where we are forecast by the OECD to experience growth of 1.3% and 2.5% in 2010 and 2011 respectively. In Greece, the figures are -3.7% and -2.5%. The implication, of course, being that while the UK's deficit will start to fall as a result of increased tax revenues and reduced benefit expenditure as the economy expands, in Greece, the debt crisis is only set to deepen.

More generally, Greece also has less discretion over its ability to raise tax revenues. With a low level of tax compliance, raising tax rates has a proportionately low effect on actual revenues. The UK does have some problems with tax avoidance and evasion, and the cuts to HMRC staffing are likely to make compliance worse, but we are in nowhere near as bad a situation as Greece.


Third, and finally, it is important to remember two characteristics of the debt that are in stark contrast to the UK. The problem of debt in Greece is long-standing. Unlike in other countries, including the UK, the credit crisis may have been the final straw, but it was certainly not the cause of the debt crisis in Greece. With different underlying causes of the problem, it would be naive to assume that the treatment ? or outcome ? should be the same. As if this is not enough, the UK has not once defaulted on its debt ? unlike Greece, who has defaulted five times over the last 200 years.


It's for these reasons that the cost of borrowing in the UK is cheaper than in Greece. The UK can borrow at around 3.5%; Greece is facing commercial borrowing rates of over 9%."

CHeers
D

[Sarah Kelly]

Er, Why so surprised David-your talking about politics? Better to Judge your local Mp by WHAT he/she says and then does .... !happy!

[David Johnson]

What is genuinely surprising is that there is no political party in the history of British politics that has thrown out so much of their election manifesto in such a short period of time.

There is absolutely no comparison in British politics and all those people on this forum who said they were voting for the Lib Dems because of their radical, left wing agenda must feel that they have been totally and completely shafted (without any certs!).

CHeers
D

[Sarah Kelly]

Thanks David..This is very enlightening - where do you get these figures? and as for the BOE being able to do anything,thank God (not labour,as if they`d had their way thay would have sold us out here aswell!)..