Bit of a problem for George Osborne tomorrow. Kenneth Clarke, in his interview with The Times yesterday, supported Labour's mini-Budget even before the main policy was briefed to the Sunday newspapers.
The Government should, he says, consider cutting VAT to 15
per cent in the Pre-Budget Report on Monday - an idea that is certainly not
Tory party policy. “If it's possible to afford a fiscal stimulus I would go
for VAT because the only case for a fiscal stimulus is to stimulate spending
and consumer demand, so the tax on spending is the one to go for. But it
should be temporary.”
As
Mr Osborne is opposed to a tax cut funded out of borrowing, but Mr Clarke says
that such a fiscal stimulus should not be ruled out. “There's no point in
being ultra-orthodox. A lot of people are going to be hurt by a dreadful
recession. If you think a fiscal stimulus is going to do any good then you
could strive to see if you can afford it.”
After Osborne and David Cameron have made strenuous attempts to get Conservative former chancellors on board before the pre-Budget report (Nigel Lawson, John Major and Norman Lamont have all been out and about, laying into the Government), they must be specially grateful for this intervention.
Only adds to Osborne's difficulty, about which I write for The Independent on Sunday today.
Ah but Osborne can come back saying that Ken Clarke never presided over a deep and nasty recession, unlike Major, Lamont, and Lawson. No wait...
Posted by: Labour Matters | Sunday, 23 November 2008 at 02:31 PM
Amazing! The Chancellor seems to think that the stores will pass on the VAT reduction to the consumer, just like that. And that the banks will go easy on SME loans. And that petrol companies will reduce prices as soon as oil prices drop. And that foreign utility suppliers will not overcharge. He should be writing a pantomime for the London Palladium.
Posted by: john problem | Monday, 24 November 2008 at 08:05 AM
A drop in the rate of VAT to 15% (the lowest that is allowed by our invisible government in Brussels) will cost about £15 billion. There are two projects that could be cancelled immediately to pay for this; the NHS Database (£12 billion) and ID cards (£18 billion). So the VAT rate cut CAN be funded.
However, NuLiebour will tie the NHS database to the ID card database, which in turn will not be cancelled for two reasons; it suits their control freak agenda and the EU has dictated that we must have biometric ID cards. This despite the fact that no one in government ever asked us about these intrusive and undemocratic schemes, and whenever anyone else has surveyed the public there has always been an overwhelming thumbs down for both.
The Tories are right when they say that we cannot afford unfunded tax cuts, but they are wrong to suggest that public spending cuts cannot be made without inflicting more damage to the economy. This government is expert at wasting our money, the NHS database and ID cards are just the tip of the iceberg.
Posted by: Keith Lonsdale | Monday, 24 November 2008 at 08:53 AM
I think the tax cuts are economic rather than political. Plus people say what difference does a 2% cut make to a 20% discount. Well most items such as water electrcity do not have 20%disocunts even in the season of jesus.
The vat tax cut is moreof short to medium tax cut,
Posted by: Dirty Euro | Tuesday, 25 November 2008 at 08:41 AM
A BUDGET with lot of Assumptions(Mother of all F**k ups),a lot of risk and not a lot of logic.(and logic is a major ingredient in the science of mathamatics)
Labour just handed the next Election to the Tories on a Plate.
Posted by: Real Deal | Tuesday, 25 November 2008 at 03:19 PM
Tha last recession in the early 90's saw interest rates at 15%, builders going bust (it took us four years to get an administrator to make up our road at the time), record repossessions (a smaller percentage owned their own homes then and there were less buy to lets and off plan purchases). Then there was the stock market that crashed about four years ago - we lost a packet on tracker ISAs in both Europe and UK, pensions suffered, and everyone started turning to property as it was thought to guarantee wealth. 9/11 and the London bombings posed a different threat to the economy. The difference today is that this mess stemmed from the US with sub prime mortgages, but most have been guilty of jumping on the bandwagon of easy profiteering. The markets have suited savers who have fixed at high rates in the last four months or so, and hurt those in the middle of trying to sell up or retire. I'll wager this will sort itself out within the next year, properties will start selling again and confidence will return. Everyone will have learnt a lesson for a few years, then the mad money-making psyche will return. It's all to do with timing really as to whether you are a winner or loser in each recession.
Posted by: sk | Saturday, 06 December 2008 at 12:47 PM