Monday, November 24, 2008

Pre-Budget Report Pre-Thoughts

If the ideas being trailed in today's press are as far as Labour are going to go in this afternoon's Pre-Budget Report, then it looks to be a very damp squib.

The two main suggestions are an emergency cut in VAT and a new high level of income tax after the next election.

I find it strange to agree with John Redwood, but his comments about the fruitlessness of the VAT change were, in my opinion, spot on.

The intention is supposedly to increase consumer confidence and get people to spend, but with the actual price cut being only around 2%, I cannot see how that will happen.

For example, an £11.99 CD or DVD will be around 25p cheaper. A £40 pair of jeans will have a pound off the current price tag - but with sales offering 20% off already, I cannot see what incentive this will offer, even if high street retailers decide to pass on the savings rather than just make a little extra profit for themselves.

It is only when you reach significant sums of money - £500 for a smart new television that the savings become noticeable, and, by then, who cares?

Plaid have already suggested a serious VAT cut from 17.5% to 5% on labour-intensive industries that would cheapen costs of necessary work such as housing renovations and make the price comparatively attractive - more than 10% cheaper than at the moment.

But if the government wants to make a real difference then they should be putting money in people's pockets and give them the chance to spend it.

For a not-dis-similar figure to the cost of the proposed VAT cut, the government could cut the amount of income tax paid by standard rate tax-payers and let that money filter through into the real economy, helping low-earning families and taking a good few people out of the tax trap altogether.

The headline-grabber this morning, though, is the proposed new rate of income tax for high earners - postponed until after the election.

Let's not pretend that this is anything to do with the current crisis - this is party politicking par excellence, a line in the sand that if the Tories dare to cross will see them hammered by Labour as being the party of the mega-rich.

The amount of money that will be raised by this is minimal. People who earn more than £150,000 per annum already have excellent and expensive accountants who are experts in tax planning and avoidance, so without additional compliance measures this is little more than a gesture.

If Labour were serious about this as a tax-raising scheme to balance a hopelessly overblown Budget, it would be set at 50%, rather than the middle of nowhere 45%, it would start at £100,000, and it would be introduced in the next financial year.

But they're not serious - they just want the Tories to say it's bad so that in spite of leading us into the recession they can claim that they are the party of the people, and the Conservatives the party of the Toffs.

Brown and Darling are fiddling while our economy burns.

Or will there be a surprise this afternoon?

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