Thursday, 21 July 2011

Well, they would say that, wouldn't they?

From City AM:

Borrowing was £1.5bn higher in April and May than at the same point last year, knocking the coalition’s plan to reduce the deficit by around £20bn. Spending in the first two months of this financial year was 4.1 per cent higher than the same time in 2010.(1)

Despite the over-spend, Labour last night blamed the UK’s anaemic growth on Osborne’s planned cuts. The deficit reduction "goes too far and too fast", a party spokesperson said,(2) arguing for a reversal of the VAT hike.(3)

The Federation of Small Businesses this week called on the government to temporarily slash VAT for the construction and tourism sectors, in a bid to kick start the economy.(4)

Yet Osborne’s policy of raising VAT while scheduling reductions in business tax was supported by Berenberg Bank economist Holger Schmieding(5): "Cutting business taxes is the strongest signal to send to global firms (6), while other supply side reforms will help boost the economy in the medium-term."

1) But both the big parties are doing plenty of Indian Bicycle Marketing. The Tories are allowing the deficit to increase while claiming that they are reducing it...

2) ... a delusion which Labour are keen to foster.

3) In which, unusually, Labour would be absolutely correct*.

4) As backed up by the FSB, who actually represent small businesses on the ground in the real economy - these people have to fill in their own tax returns and write cheques from their own bank accounts, and know full well that VAT is a tax on business and that they pay five times as much in VAT as they do in corporation tax or income tax on their profits.

5) Banks love the idea of VAT being increased and corporation tax reduced because they are largely exempt, for every extra £1 input VAT they suffer, they save £10 in corporation tax.

6) Banks are global, they can redirect transactions to whichever jurisdiction they choose; a local building firm or pub landlord can't just up sticks and relocate to a country where VAT on construction or catering is lower.

* Reducing VAT to 15% and curtailing exemptions for Business Rates were about the only two really good things they ever did. Along with exempting foreign dividends from UK corporation tax and the Substantial Shareholdings Exemption.


James Higham said...

Despite the over-spend, Labour last night blamed the UK’s anaemic growth on Osborne’s planned cuts.

Should one cover one's mouth to yawn?