Putting the cat among the pigeons

The CEBR have grabbed the bull by the horns and set the hare running with their suggestion that VAT should be cut from 17.5% to 12.5%, a story which appears to have been featured by most major newspapers.

As I have long argued, VAT is The Worst Tax Of All (followed closely by Employer's NIC)*. The detractors are swift to point out The Elephant In The Room:

The EU's VAT Directive sets a lower limit of 15pc for all member states, but it allows for a temporary cut under "certain conditions". Brussels is unlikely to object strenuously at this stage.

I am quite sure that the CEBR are perfectly aware of this, so they are killing two birds with one stone; they are highlighting the fact that VAT is the worst tax and that it's imposed on us by the EU.

As to the other objection:

The drawback of a VAT cut is that stimulus leaks overseas through imports, a risky strategy at a time when the UK current deficit is already running at 3pc of GDP – although imports are now collapsing. It also puts off the inevitable day when Britain must shake its addiction to shopping and start to live within its means.

Well, no actually. Total VAT receipts are derived about half from the sale of goods and half from services. Services are by definition almost entirely produced and consumed domestically, so an even better suggestion would be to leave VAT on new goods as it is for the time being, and scrap VAT on services completely. Services already suffer a super-tax, i.e. Employer's National Insurance, so that would level up the playing field.

* Even the European Central Bank's research backs this up, from page 19 of this:

Thus, it seems that while for the OECD countries social contributions are more detrimental to growth, for the EU countries indirect taxes are more harmful. In contrast, direct taxes and size do not seem to affect growth significantly for either set of countries.19 This could suggest that direct taxes (such as income taxes) are less distortionary than indirect taxes (such as VAT, sales taxes, goods and services taxes) and social contributions.

(please feel free to suggest more animal-based metaphors in the comments)