Thursday 16 June 2011

Ed Balls gets his sums wrong - shock

Ed Balls starts off by talking sense:

His proposal to repeat the temporary cut from 17.5% to 15% implemented in the final stages of the New Labour government is the most significant policy proposal to emerge from his lecture to the London School of Economics this morning.

This January saw VAT increase from 17.5% to 20% - a move which former Labour chancellor Alistair Darling had privately acknowledged would have been necessary had Labour won a fourth term in power.

Mr Balls argued that the 13-month temporary cut had made a real difference which helped the economy return to growth, however. The Institute for Fiscal Studies called the cut an "effective stimulus", he pointed out...


But lets himself down badly at the end:

Mr Balls accused Mr Osborne of implementing his plan because of "electoral politics", not the good of the nation... The plan also "uses the Liberal Democrats as a human shield" and hopes to "store up a Tory war-chest – bolstered perhaps with the proceeds from a quick sale of Northern Rock – to cut income taxes before the election", he claimed.

They only hope to make about £1 billion from re-privatising Northern Rock which is not even going to make a dent in the planning annual deficit of £150 billion, and even if there were scope for tax cuts, £1 billion would only be enough to cut income tax by 1% for about two months.

3 comments:

Deniro said...

with VAT at 20% the gvnmt is taking a bigger slice than some retailer's mark ups. Crazy.

Bender said...

I thought we could not do anything about reducing VAT without EU permission?

http://link4business.info/2008/11/eu-will-allow-darling-to-cut-vat-rates/

Don't know if this has been enacted yet. It's from 2008 so chances are, no.

Mark Wadsworth said...

Den, it's a lot more than most retailer's net profit margins.

Ben, we can't have main VAT rate below 15% or above 25%, with a central target of 20%. So in practice, we probably wouldn't be able to change it anyway.