VAT increase to cost families £450! Did I hear that right?

I am just watching BBC's Newsnight. Ed Balls has just said that the VAT rise from 17.5% to 20% will cost the squeezed middle £450. Did he really say that as a sound bite?

The thing is, that if you work it out, to get taxed £450 more by the VAT increase you would have to spend £18,000 on VATable goods that are taxed at the full rate. That excludes most food, vegetable plants and seeds, books, children's clothes, rent, mortgage and of course newspapers.

So who spends £18,000 on luxury items a year who is in the squeezed middle?

How hard does the VAT increase hit?

Well the short answer is it depends on how much you spend on what.

However I have seen some fascinating rubbish on the issue.

VAT is going up 2 and 1/2 pennies in the pound, but this rate does not apply to food*, rent, mortgages, domestic gas and electricity, children's clothes, books and newspapers. It does apply to petrol, cigarettes and alcohol**, food at restaurants etc.

So how much do you spend on VATable goods a week that will be going up?

To give you some idea, to beat the £1.30 a week extra some are claiming the poorest would have to pay in VAT you would have to be spending £52 a week on goods and services which attract VAT at the full rate. This does not include heating, lighting, food, children's clothes.

Some say it will hit the "average" family by £300 a year. That is paying £5.77 a week extra in VAT or, in terms of spending on VATable goods and services, £231 a week. This is where I really start to scratch my head as I just can see that level of income after I have paid for things like the house, the bills council tax and food all of which is not vatable. In fact if you look at it, that applies to a household income of £23 K (presumably after tax) which equates to a weekly income of £442. Is anyone seriously suggesting that a household with that level of income is blowing well over half of it on VATable goods? That would leave only £211 a week (£915) to pay for the house, council tax, utility bills (excluding telephone which is charged at the full rate) and food. Credible? I don't think so.

The BBC has this.

That said I would rather tax wasn't going up, but then I would rather not have had 13 years of a Labour government flying the economy into the ground whilst pushing up public sector inflation through the roof.

Cutting Public Spending by £90 billion!

If UK PLC popped along to see its bank manager, around about now, and asked to extend its overdraft by £606 billion over 5 years plus no date for the start of repayments he would say No! In fact, were it not for the bank of England printing money to buy gilts back, there is quite a high likelihood of a gilt strike. That is where the normal gilt buyers refuse to buy, leaving the government high and dry.

The bank manager would be looking for cuts in expenditure of at least £50 billion. The problem is that would be drastic. With that in mind I read the following email from A Ferrand Stobart & Associates:

Could someone please recognise that to economise in any service, public or private,one does not cut the service, one cuts out the current waste in providing that service which often actually improves the service

£15bn of economies are proposed in the Budget in the Public Services, about 2% of total expenditure, Reform says £30bn is possible 4%,. The Taxpayers Alliance has quoted £80bn, 10.5%, In 20 years of work in the field of operational improvements leading to cost reductions I have never found less that 12% and often up to 15% of benefits [cost reductions] achievable in the 12-18 months after revised system installations, £90 - £112bn. per annum in the Public Services possibly !! The Government/Chancellor are setting a very low target for economies which are quite certainly there to be had.

I have personally examined several Public Services in my time, and worked in a few of them. The most interesting reaction to what was called "analysis", establishing whether there was potential for improvement before offering to deal with it, was from a large department in constant touch with the public. [I shall not name names and it was some time back]. The problems, waste and frustrations at "shop floor" level were the same as at any other clerical operation that I had looked at. Plenty of opportunity for improvement, and I had an enthusiastic talk with a union shop steward on the possibilities !

But when I presented my findings to the top civil servant in charge, he was not pleased. He had wanted a report that his department was working well !! I do not think that he went "out on the floor " much.

If a way could be devised that the staff in a Public Service were rewarded by part of the cost of the waste they stopped, one might get somewhere. This has now been suggested by Conservatives ?

As Lord Digby Jones said recently "the work could be done by half the people", as the Book of Common Prayer says "There never was any thing by the wit of man so well devised or so sure established which hath not in the continuance of time become corrupted", and as Cicero said "Men do not realise that a great revenue may be had from economy"

Now, that is quite some savings, particularly from a relatively simple change. That said they could also scrap the stupid accounting rule that all budgets must be spent by year end or else you lose the balance and have it removed from your next years budget. With that sort of threat of punishment is it any surprise that budgets are pretty much always spent in full whether what it is spent on is worth while?

What is the point of the 50p tax rate?

The short answer is that it is fantastic politics, and many opinion polls say it is popular.

The problem I have with it is that I want the rich to pay lots of tax, not tax the rich a lot. They may sound like the same thing but they are not.

I wrote this about how the 45% tax rate could cost money, but consider the actual evidence. When the rate of income taxes were eventually rationalised in 1988, to make the top rate 40%, the tax take from the rich went up, and when Denis Healey raised them the tax take went down.

So what you need to decide, is whether you want more cash from the rich (in which case rationalise the tax system to make it simpler, and reduce tax breaks) or whether you want to punish them and then get less cash so you have to tax everyone else more.

I know what I want.

The Budget 2009: My Comment.

Well, this government intends on borrowing eye watering amounts of money. In the net two years alone, if its laughably optimistic figures are to be believed, £381 billion. That is more than ALL OTHER GOVERNMENTS OF THIS COUNTRY HAVE BORROWED PUT TOGETHER!

As if that is not bad enough, the growth figures that future borrowing are based on are very optimistic. The net result is public debt will double.

Lefties the blogosphere over will be saying how this will ensure growth etc.

Rubbish. Firstly the numbers have no credibility in terms of showing how the public finances will be brought back to balance, and so drive up the cost of borrowing. Secondly borrowing is not free money, it is deferred taxation. As the tax rises and spending cuts to pay for it kick in, growth will be reduced.

The government think that growth will end up trending at 3.5%. This is a pipe dream. For a start the last 10 years of growth under Labour have been funded by both public and private debt. That can´t continue, secondly growth will be strangled because the government will have to pay back debt with higher taxes.

In short, we are in a very bad mess.

The BBC has this, with this report on David Cameron´s reaction , whilst Stephany Flanders has this.

45p tax rate will cost us money!

One of the Daily Telegraph´s leads this morning is that the 45% tax band will cost us money, in the sense that it will raise little or no extra tax and may cost some. It is based on an IFS study.

The treasury says this is bunkum, but even on their figures, it will actually only raise £600 million, leaving the budget short of £1 billion.

None of this is a surprise, as reducing the higher rate tax band to 40% actually raised the tax take.

The problem is of course, that beating the rich is popular, even if it is a really stupid thing to do.

Ken Clarke on inheritance tax

Apparently Ken Clarke has said, on national TV that perhaps raising the inheritance tax limit to £1,000,000 may not now be the priority it was because Labour have so trashed the public finances.

Fair comment, I say. I agree. I suspect a lot of people may have said the thing. The only problem is that Ken Clarke is in the shadow cabinet so should not have said it. It leaves the way open for attacks from Labour, and surprise surprise that is what has happened. It also has to be said that he need have said nothing now, after all it is not his brief.

Mind you I am amused that Lord Mandelson has piped up claiming that ¨the Tories are confused on tax¨.

Not something you could accuse Labour of, they know exactly what they want to do on tax, hence the 10p tax fiasco, which is to tax everyone until the pips squeak and the economy is bust.

The BBC has this.

VAT cut wont work and wont help the poor

Alistair Darling's pre budget report is out and it is nothing of the sort it is an emergency budget as the debt bubble comes home to roost.

The VAT cut wont work in that it will not sufficiently boost spending.

It crucially will do very little for middle and low income earners whose budgets are already stretched as they already have little spare to spend on items on which you pay VAT that has not also been clawed back in duty raises.

Consider the average family budget. What is it spent on at the moment and why is it squeezed? Well lets look at the top items.

1. Housing costs (rent or mortgage) no VAT.
2. Food. Mostly no VAT (Special cases luxury foods such as biscuits not essential ones like cakes, go figure.)
3. Gas and electricity. No VAT reduction as VAT is only charged at 5%.
4. Transport costs. Fuel VAT cuts will be made up for by increases in duty.
5. Beer, wine and cigarettes. All VAT reductions to be more than clawed back.

So there you have it. Any presents most of us can buy this Christmas will be priced at something like £9.99, or some variant there of. Can you imagine that dropping to £9.77? No, me neither. (That said all praise to those retailers who do use those sort of numbers o show they are doing there bit!)

What is more as massive shop discounts have not brought about nirvana what will a paltry discount do?

Now, what will help. Well when lower household gas and electric bills turn up they will relieve the pressure on hard pressed households and may even make them feel good. Rises in tax credits will help for those who claim them as well.

All in all it would have made much more sense to cut income tax though.

The BBC has this.

National Insurance and Fuel to rise!

Is Alistair Darling having a laugh?

National insurance to rise again and petrol and deisel duty to rise to take account of drop in VAT!

National insurance is in effect a tax on jobs!

What a git!

A Super Tax for the rich at 45%!

Apparently the Pre Budget report (or really a mini/maxi budget with brown pants) will say there will be a new super tax rate of 45% to be brought in after the next election.

Ha ha ha ha ha ha ha ha ha!

Is that the best they can do?

Obviously they will be playing this as "making the tax system fairer" except it won't. If you get get the super rich to pay 20% tax that would make the system fairer, but in fact they avoid it. (more on that later).

So it will make a challenge in the politics of the next election. Labour will go down the Old Labour lines. The reality though is this, this tax increase will bring in £2.5 billion a year compared to a budget deficit that will have risen to an eye watering £150 billion a year notwithstanding the fact that we appear to have guaranteed the banks to a level of 400% of GDP.

Expect there to be pressure on the pound tomorrow.

The BBC has this and the Times has this.

PS.

Had this been an honourable government someone would have resigned over these leaks. They won't, it is not an honourable government.

Tax cuts now!

There has been a debate in the Conservative party ranks for a long time, about tax cuts, or rather their timing.

I think we all agree that there should be tax cuts, and I think we all agree that the burden of taxation is too high. The problem was, and to some extent still is how do you pay for them?

If you intend on cutting public expenditure by £1 billion by say, losing people with ridiculous job descriptions, Labour will try and paint that as axing hundreds of nurses, doctors or teachers. That is a narrative that needs to be broken.

We, as a party have promised to promised to "share the proceeds of growth". That was fine. Times have however moved on. The car crash that is Gordon Brown has happened, the economy is hitting a brick wall at great speed and we need to look afreash at what we do and what we propose.

Firstly we need to cut taxes, and at the low end first, by reversing the increase in taxes on small companies and by reducing taxes on lower incomes by upping personal allowances or other similar moves.

The second thing the Conservative party needs to do is nail the idea that spending money equals results. It doesn't. This government is looking to raise spending on education, per child, to that spent in private schools. As a policy objective that is nuts. It also wanted to, and indeed has achieved, raising spending on health to the average across Europe. That is the policy objective, rather than looking for results.

This is where we need to attack Labour. If you can buy a car for £10,000 spending £20,000 on the same car does not make it a better car.

The mistake of Iain Dale and Guido Fawkes

I already highlighted Denis MacShane's opinion piece in yesterday's Telegraph .

Both Iain Dale and Guido Fawkes use that as some kind of argument to say that David Cameron should be saying that we will be cutting taxes as soon as we get in. They are both wrong for a number of reasons.

• There is a problem of political presentation. If we say we are going to cut spending then the vacuous left will equate that (wrongly) to a number of nurses or doctors. It is true that someone like Denis MacShane calling for tax cuts makes it easier and makes it harder for Labour to make the argument over nurses etc.
• Who carries out the cuts? This is important because if the management responsible for the waste are asked to make cuts then they tend to cut what is necessary over what is waste. They are only wasting money because they are incompetent anyway. As an example Margaret Thatcher tried to cut 15% from the NHS budget in the 1980's. I worked in the NHS at the time and you could see that could be done. The only problem is that the people doing the cuts were to stupid to see where to do it so cut services instead.
• We do not know how bad the public finances are going to be when we win the next general election. We already know that Labour will borrow money hand over fist to pay for their own mistakes like the 10p tax fiasco and hock the country to the eyeballs in a fascist finance scheme.

So, we need to be careful. We are promising sustainably lower taxes, which can only be achieved by being careful and thoughtful. As an example by looking to reduce family breakdowns and the associated costs to society and the tax payer that ensues. We do need to cut out waste but we need to find the right mechanisms for doing that, like fund holding GP's. The problem is that there will not necessarily be any immediate tax benefit to any of this on day one. Many policy changes will take 3 to 5 years to start having a positive effect. In the meantime we can "share the proceeds of growth".

Another week, another rebellion?

This weeks rebellion on the Labour benches is over car tax, specifically the way in which tax increases for higher emitting vehicles will now be backdated to 2001.

According to this article in the Telegraph the change affects 18 million drivers, whilst the Daily Mail has this.

This seems to be causing some angst on the Labour benches, and not because a green tax is being raised, but because it is being done retrospectively.

There are a number of issues with the tax as proposed of course, like how it seems to hit quite a lot of what people think of as "family cars" and also the fact that it is more likely that a 7 year old family car is likely to be owned by someone on lower income than a new one.

I would pose the question "what will next weeks revolt be about?" but we still have the 42 days thing coming up.

Has a Prime minister ever looked so weak and inept?

Is Darling's £120 bung enough?

In what is frankly outstanding news Alistair Darling the Chancellor has given all basic rate tax payers £120 per year by raising personal allowances by £600. Apparently this will not affect higher rate payers.

This does compensate all those who lost from the 10p tax issue, but it does not give all of them their maximum loss. However it does sort things out now. Where it does fall down though is compensating an a lot of people who actually gained by the abolition of the 10p tax band. Suits me though.

So is it enough?

The short answer is yes and no. If it was to buy of Labour rebels led by Frank Field then yes it appears it is. Frank Field even apologised to Gordon Brown in the house for getting personal over the weekend.

If it was in the hope of not losing Crewe and Nantwich, it has not got a hope. For a start the manner in which the concession was dragged out of the government speaks of a government that is aloof, slow and difficult. Secondly the electorate can bank this now and still give the government a good kicking. In short, the Crewe and Nantwich by election will still show a Conservative win.

The BBC has this.

10p tax U-turn: jam in October?

Apparently the government is going to review the effects of Gordon Brown's last budget which removed the 10p tax band, and do something about it in October, albeit backdated to the beginning of the tax year.

Brilliant.

So if you have no, or little money you can starve till October. Not only that but you get the impression that someone will have to apply for something where the take up will be less than 100%.

The BBC has this.

Will the 10p band be Gordon Brown's last stand?

Apparently there has been much comment on this. Politicalbetting has this which quotes from this article by former Brown cheerleader Jackie Ashley.

It is not looking good for Gordon Brown or Labour. Even if they do get rid of Brown there is no one in Labour who could recover their electoral position.

The BBC also has this.

10p tax rate abolition: Will it be Gordon Brown's last stand?

Many people commented on the abolition of the 10 tax rate when it wasn't announced by Gordon Brown last year, but was hidden in the budget detail.

Many, including me, thought it was a case of robbing the poor to pay the rich. We still do. The finance bill which contained it passed without much revolt at the time because Labour MP's either were too scared of their soon to be new Supreme Leader or because they thought they could get away with it.

Well, the truth is coming home to roost now. That cut is unpopular. No one bar the most sycophantic minister will appear to defend it. The wagons are circled around Downing Street. There will be no giving in apparently.

The only problem is that up to 75 Labour MP's have smelt the coffee, and will rebel when an amendment is voted on for this years finance bill.

We have to be clear on this. It would be a huge smack in the face of this government and Gordon Brown in particular to lose a vote on a finance bill. It is the sort of thing you expect to bring down governments.

So if Gordon loses, will he call a general election or try hand over to Ed Balls who will guarantee a Conservative victory of massive proportions?

Who knows. I would not want to be in Labour now though.

The BBC has this.

Inflation beating Council Tax Rise!

Yes citizens of this great socialist republic, rejoice, for whilst it is not possible to have inflation busting pay rises, the Government of Gordon Brown is pleased, nay honoured to announce that it can produce an inflation busting council tax rise!

Meanwhile all us poor downtrodden tax, fuel, food and general bill payers have to work out how to pay for this largess.

Thanks Gordon.

The BBC has this.

Inland Revenue want to grab your money

The Inland Revenue, or rather Revenue and Customs, now want to take money without a court order whilst overcharging a million people a year.

I thought the power to take money from peoples bank accounts without a corner was excessively draconian and fundamentally wrong, but then I heard that the National audit office studies show just how many mistakes it makes in over charging people tax (it undercharges as well).

The state should never have unfettered power, because it does make mistakes. The fact that the state wants it, when it is clear that they make a huge number of mistakes should really concern people. They clearly just do not get it.

The BBC has this on the amount of mistakes the Revenue makes, whilst the FT has this on the new powers the government want and reaction to it.

Another assault on cars by Gordon Brown

Over the last 10 years this government has done just about everything it can o tax company cars of the road.

In some cases these cars were no more than a way of paying an employee by another means but in many more they were a way of the employer providing a vital tool for work. Some of us do have to drive during working hours.

The net result has been that many people who use cars for company work have ended up owning their own and charging the company for using them. It is either that or get heavily penalised in tax. A lot of voluntary workers do the same, providing their own cars and then charging back mileage at an agreed rate.

Well, now the government wants to cut the amount that can be paid in mileage before you start getting taxed. According to the AA they will in fact cut the allowance to less than it actually costs to run a car. The net result will be that the government is forcing employees to either pay more tax by the back door or subsidise their employer.

The Telegraph has this.