Saturday 22 November 2008

Outbreak of commonsense ...

... at HM Treasury!

I have been pointing out for ages that VAT is The Worst Tax Of All, to little avail. Happily, the CEBR got a lot of coverage recently with their suggestion that the standard rate of VAT be reduced from 17.5% to 12.5%. Former Chancellor Ken Clarke suggested in an interview in today's Times that the best thing that The Badger could propose in his much vaunted Pre-Budget Report next Monday would be to reduce VAT to 15% (as a good EU-phile, Fatty Clarke knows that the EU demand that each country has a standard rate of no less than 15%), and hey presto ...

From The Times (breaking news): "Gordon Brown to cut VAT as winter recession bites" (note: not "Alistair Darling to cut VAT ..."). A similar story has appeared on The Telegraph's website.

Equally heartening, another of the bullet points in that article suggests that there'll be: "A tax exemption for foreign dividends, designed to persuade UK-based multinationals not to relocate abroad."

I have also been saying for ages (e.g. item 2 here) that the UK ought to exempt foreign dividends from tax, just like all other civilised European countries (i.e. all of them except the UK and Ireland).

The static 'cost' per annum of these two eminently sensible tax reduction simplification measure would be around £12 billion for VAT and £1 billion for the foreign dividends, the dynamic 'cost' will be less than half of that, i.e. about one per cent of current government spending, one-fifth of which is pure waste and corruption anyway.

7 comments:

marksany said...

2.5% cut - not much of a fiscal stimulus, is it, though? M&S just cut its prices by 20% and hardly increased sales at all.

For a fiscal stimulus to work, it will have to be so huge that:
a) it could never be repaid
b) it couldn't be funded
c) it would terrify lots of the population

Mark Wadsworth said...

MA, it's two-and-a-half steps in the right direction. Only another fifteen to go.

Stevie b. said...

...And how are we going to afford the other 15? And whatever the other 15 are, how do we know they'll be enough? And at what point on the way to maybe being enough will the markets say "that's enough!" before we get to the destination? And then what?

Mark Wadsworth said...

SB, we can afford them by getting rid of millions of totally unproductive (if not actually counterproductive) public sector workers. The significance of 15 is that it's the new VAT standard rate (hopefully).

Stevie b. said...

Mark W. - if only! But...wouldn't it add substantially more to unemployment at the wrong time - just as e.g. infrastructure spending etc was trying to put a patch on it? How about abolishing the index-linked element to civil service pensions and raising the retirement age in return for NOT sacking more than an identifiable number? Would this not add substantially to future flexibility?

Mark Wadsworth said...

SB, I'm not a monster. The three million who get the chop would be given approx. one year's salary each in lieu of redundancy and for waiving their accrued pensions.

Think about it - they are in fact unemployed already, in the economic sense that all these quangista and meddlers aren't adding any value, so even if only half of them get 'proper jobs' within a year, there'd be an overall boost to output.

Agreed on the generosity of public sector pensions, of course.

AntiCitizenOne said...

> And how are we going to afford the other 15?

Cut the size of the state.