Gordon Brown out of touch on VAT!

Gordon Brown is totally out of touch with what hard pressed people are actually spending their money on.

At today's Prime ministers questions he said that the VAT cut was saving the average family £5 per week. If you calculate that you would need to spend £235 per week on goods and services which attract VAT. (£1,018 per calender month or £12,220 per year).

So, after you have paid for all those things that do not have VAT on them, like rent/mortgage, council tax, food, domestic gas those things that do attract VAT but have had their duty raised, like cigarettes, beer and petrol, do you have £235 left? I don't. Neither does anyone I know.

Which planet is he living on? On the other hand for the same money he could have raised personal income tax allowances to £10,000 thus putting £67 per calender month in my pocket, or about £15 per week! Three times as much as the government claim and much much more than that over what benefit I get from the VAT cut.

What I could have done with an extra £100 a month!

It is I have to say fascinating talking to real people of all parties, including those running businesses, middle and low earners and hard bitten old Labour types.

None of them can see much point in what this government is proposing to do with VAT.

However, looking at the relative costs, both Bob Piper (not new Labour, not old Labour, just Labour), the Adam Smith institute, Iain Dale and indeed I agree on is that it would be oh so much better just to raise personal income tax allowances, for the same cost as the VAT giveaway to £10,000 per year giving every wage earner £66 per month, or for the cost of the whole package over £100 per month.

It would have lifted millions out of tax and really incentevised work.

I could really do with the money. I wont see any of the VAT decrease, but i would see cash in my pocket, to do with as I want.

Now wouldn't that be good?

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.

VAT cut to 15% but will it work?

The broadsheets today are filled with "speculation" that VAT will be cut to 15%, the lowest that being in the EU allows.

Of course were this true, any chancellor with honour would resign, but then new Labour chancellors have been leaking budget information since 1997 and have no honour so don't expect that.

However moving on the the substantive point. Will it work?

No.

Well, what it may do is drive up consumer spending, mostly on imports, but only for a while. It will be a bit like waking up in the morning with a massive hangover then having a large glass of whiskey to get drunk again. That may get you over the hangover for a bit, but you still have to get over the hangover.

The hangover here of course is massive debt. Consumer debt has tripled under New Labour, with our banks lending £700 billion more in loans than they had in deposits. That deficit is a massive problem.

On top of this government is borrowing hand over fist in some kind of weird attempt to have a bit of a sobering drink. It won't work.

The fact is that we have a millstone of debt that has funded an asset boom around our necks. This will need to be paid off and this will take an age. During that time we will face lower growth than we otherwise would have done.

The Times on Sunday have this, The Observer has this, the Telegraph has this, the BBC has this and the Spectator Coffee House blog has this.

How to cut spending, and tax without affecting public services!

Here is a quick "How to" or "howto" cut public spending by 5% without hurting so much as a fly, or making one nurse, doctor, teacher, police person or indeed diversity officer redundant, and therefore pass this on in tax cuts.

It also has the great benefit of allowing the various departments of government, local government, quangos and all to plan more responsibly whilst getting better value for money for our cash!

Its a bit of a win win all round, but with one small catch which I will come on to later. Here is the plan;

End the hideously stupid rule that any budget needs to be spent by the end of the budget period or else not only will that money be lost but the next years budget will be lowered by the underspend.

This will stop government departments year end blow outs, incentivise them to look for value and allow them to roll over budget surpluses to spend on larger projects.

The one downside is that private companies that look to grab March spending splurges will be hit and that will have a knock on effect.