I've always been pretty agnostic about inflation, but over the past couple of decades it appears to have been broadly agreed that low price inflation of about 1% or 2% a year is 'about right', and who am I to argue?
Enter stage right: The Home-Owner-Ists who are busily tearing up the economic rule book. Danny Blanchflower, former member of the Bank of England's Monetary Policy Committee now says that high inflation is A Good Thing.
Quiet Guy at HPC sums up his logic thusly:
Blanchflower argues that we should try to generate inflation to protect people in negative equity - even while acknowledging that the nation will face a drop in living standards as a result.
This is possibly one of the most blatant attempts to explicitly support homedebtors I have ever come across. Blanchflower repeatedly states that we should be shaping our monetary policy to help people in negative equity by letting inflation rip - whatever the consequences. Scary stuff.
See also, the two main parties agreeing behind the scenes that they'll hike VAT to 20% (increasing receipts from £78 billion to £91 billion per annum - making countless businesses unviable* and throwing hundreds of thousands onto the dole queue) while simultaneously promising to freeze Council Tax (total receipts, after deducting Council Tax Benefit, about £20 billion per annum). These are approximate figures only as I can't get the Public Sector Finances Databank (Excel) to open properly.
* It is impossible for all VAT-registered businesses to 'pass on the increase to the consumer', so their total net turnover after VAT will go down by 2.5%.
2.5% x approx. ten million people employed by VAT-registered businesses = 250,000 jobs. And of course those businesses won't be paying corporation tax or PAYE any more, and there'll be another 250,000 on the dole, or even worse, in freshly created government make-work jobs. So they'll be lucky to increase overall tax receipts minus additional welfare costs by a fraction of that £13 billion static increase. Twats.
Are you all set?
2 hours ago
9 comments:
Correct me if I'm wrong, but won't higher inflation mean higher interest rates, if the bottom isn't to fall out of the pound, or is sending the pound the way of the Zimbabwean dollar considered a reasonable price to pay for getting a few reckless home-owners out of the shit?
B, if it comes to it, the HOIsts will probably consider that a price worth paying.
Matt,
Firstly an a.p.(ante script!) I was composing a reply to your completely erroneous accusation of advocating devilment when real life intruded...
I totally understand what you say about VAT but it is how you say it that is, perhaps, more important: people do not understand VAT.
I worked in a shop when VAT was increased from 15 to 17.5% and all the people who demanded out of their contracts(it was TV and video rental)blamed the company not the Govt.
What has to be(verrry patiently)explained is the point
you made previously--that VAT lowers/reduces profits and ergo stops companies expanding/retrenching without redundancies/paying for R&D etc.
I made a comment ages ago on here re keeping my turnover below VAT because it would kill my business
to enter the world of VAT.
Since then I have taken to explaining it thus: If I show
you something that I know will sell for £10 then you
will consider it to be worth it or not. If I say this will sell
for £10 plus(£10-vat@15%+new vat@20%, whatever)they will say no. If I tell them that, without vat, I probably would still have the business and be employing oodles of people I get blank stares.
So, you have to develop a way to say to the largely ignorant masses that vat kills businesses(and
undoubtedly does that to people who are even thinking of starting up).
No, I don't know how to do it yet but there must be a wording that says 'VAT stops you being employed'.
Maybe it should be more succinct or maybe it's that simple.
STB.
STB I've tried everything, such as pointing out that the clue is in the name - it is a tax on VALUE ADDED, in other words it is a tax on gross profits, i.e. it is a profits tax.
The mere fact that it is itemised on the customer's bill is neither here nor there.
By reverse logic, what if the government passed a law that said that businesses could add up their entire tax bill (PAYE, corp tax, VAT) and divide it by selling prices and add it to the selling price? Would doing business in the UK be tax free all of a sudden?
But decades of brainwashing are too powerful for me.
The supermarkets won't like a VAT increase; that 2.5% will come straight off their bottom line. I wonder if this idea will suffer from Sudden Death Syndrome.
B, the supermarkets won't. When VAT was reduced to 15%, both Sainsbury's and Wm Morrison's kept at least half the value of the cut.
On t'other hand, VAT is a barrier to entry, so if forced to choose, big operators prefer VAT hikes to corporation tax hikes.
Thanks Mark.
Until I read your comments here I could never quite get my head around VAT. I instinctively knew it had a bad side but could never articulate it... now though, its like a light bulb just blinked on in my mind. Wow, you've opened up the flood gates.
By the way.
I remember (although I'm sure the Tories wished I hadn't?) that John Major temporarily increased VAT to fund Transitional Relief as we moved from the Community Charge to the new Council Tax. Question is; once the Transitional Relief ended (after 4 years) why wasn't VAT returned to its previous level?
Second thoughts, don't answer that... of course we're dealing with the Government aren't we?
Brown has pulled pretty much the same trick with fuel and fags. He cut VAT but increases Duty so as not to make these politically incorrect baddies cheaper. But when VAT returns to its former level... well, guess what happened to the increased Duty? Sigh!
JP, my pleasure.
Now you mention fag duty, that is a good comparison. The stated aim thereof (besides raising revenue) is to discourage the production and consumption thereof by making it more expensive.
As we know, demand for fags is price-inelastic, so even the huge duties we have in the UK do not reduce consumption much.
But what is VAT if not a duty on just about everything? Seeing as demand for other things is much more price elastic, a 20% increase in price (assuming that VAT really were passed on in full to the customer) must mean that demand and hence production goes down by more than 20%, ergo, economy f***ed.
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