Monday 26 November 2012

25% VAT?

OK, Daily Mail scare story is certainly is - however this is also the considered response from the Institute of Fiscal Studies as to what to do about the growing hole in the UK's already holed budget.

Rather worryingly they seem to think tax rises are the answer. Already the UK has some of the highest personal taxes in the whole OECD and now, with a nasty budget deficit, the idea is to raise more in taxes.

The far and away more obvious thing to do is to cut spending. Little progress has really been made in cutting spending and those with their hands out are adept at showing the difficult cuts that are made to say disabled services. Less point is made about say, closing libraries in the age of the Internet.

The real truth is that the Government is still far too big and is spending more money than it has by a colossal amount. The crisis of 2007/8 will forever be a denouement moment for the ear of socialist spending for it came as the endgame for social welfarism was beginning due to the ageing of Western societies.

The better news, not that any political party is currently thinking it, is that all is not lost. There are plenty of ways to save money, cutting aid budgets, reducing welfare spend on the middle classes and others (e.g. the butty tax credits), reducing money spent on the NHS by regionalisation and privatisation, encouraging Scotland to go its own way and taking its welfare insanity with it. Not to forget pushing a planning-led boom, building new airports and railways together with exploiting cheap energy sources like shale gas - all of which will help renew our manufacturing capacity over time.

So there is plenty of hope, lots that can be done. Rather worryingly, none of the politicians we have are ready for this. All are in thrall to the often state-sponsored special interest groups and also, dare I say it, the Group-think position of economists who see Keynesian demand problems everywhere and think the UK is like Greece (these being the same economists who did not see the Credit crisis coming).

of all the UK parties only the Tories and UKIP even come close to trying a few of these ideas out and they get roundly criticised for it. MY my question is what will be the trigger for sanity - do we only get sanity with another crisis?


Blue Eyes said...

Just been reading Carswell's book The End of Democracy.

He points out that over time it is inevitable that taxes will shift from incomes and corporate profits to consumption and property. VAT will almost certainly reach 25% over time. We'll get our new council tax bands/mansion taxes whatever the current Chancellor says. Voters won't like it but it is inevitable.*

The big government era is over. Many have known it for a while. The only question left is whether the governing classes can bring the electorate round quickly enough for there to be a hard landing or if reality will be denied long enough for the whole thing to blow up in our faces.

*Carswell says that a more regressive "balanced" taxation system is desirable because it means more voters are likely to side with spending-cutting politicians but persuading people that progressive income taxes are bad for democracy is rather hard.

Electro-Kevin said...

The problem with Daily Mail scare stories is that they so often turn out to be true.

Jan said...

Sadly we will probably get another crisis......somebody needs to be bold to avert it. Instead of tinkering it would be better to cut whole government departments and/or withdraw from the EU etc to save real amounts of money rather than dribs and drabs here and there.

I agree with taxes on consumption and can't understand why people are so against it. If you've got pots of money to buy expensive stuff (posh houses/yachts/expensive watches/bags/shoes etc)then pay a bit more in tax (maybe via a higher rate of VAT on such luxury goods so we have 2 levels of VAT). The filthy rich are less able to avoid these taxes than taxes on income and may even have to move some of their cash onshore to pay for it.

Blue EYes said...


The filthy rich already pay for the vast majority of government spending through the extremely progressive income tax. Property and consumption taxes are much more regressive because the rich spend a far smaller proportion of their money on spending (whether on houses or food or luxury goods) than the poor do.

That is the simple reason for the unpopularity of property and consumption taxes. It has nothing to do with "affordability". The most vocal online proponent of land taxing that I know of has to introduce a "citizens dividend" to counteract the regressive nature of the tax. That tells you quite a lot.

As for cutting whole departments or the EU - well. The EU costs relative peanuts. EU spending is capped at 1.something % of EU GDP. The regulations etc. are expensive but still a relative drop in the ocean. Foreign aid isn't even at the 0.7% of GDP that the Cons want it to be at. The wealth redistribution bit of the welfare system that IDS is looking at isn't even particularly expensive.

The big money bits of spending which will HAVE to be reformed one way or the other are entitlements such as "old" age state pensions and state-sector pension commitments. These numbers are HUGE and the out-and-out elephant in the room.

andrew said...

In the same way that the city used to be a v. efficient method of funnelling money from savers to businesses - but isn't really doing that anymore, I am sure HMRC used to be an efficient method of funnelling money from subjects to the govt - but isn't really doing that anymore.

Both institutions seem to have lost sight of what they are there for.

If HMRC are spending millions arguing about Corp Tax (and on the other side, corps spend millions on accountants), and this unfairly advantages large corps based overseas, one good answer is dont tax at all.

I agree that taxes should be focussed on things that are cheap and easy to collect - transfers of assets, consumption, personal income. Those taxes should be broadly based.
(This paragraph was based on the assumption that the direct and indirect costs of collecting corp tax > the costs of VAT or income tax)

There is always pressure to spend more - even now there are groups of concerned, reasonable, outraged people who think that their grandmother should not have to sell
her house to pay for her sheltered housing.

The more individuals are taxed, the more they will work out that if someone elses GM does not sell her house to pay for the accomodation, that cost will be paid for from their taxes.

I have no problem paying a high level of tax. I think there should be police, schools and health provision for all. I am not convinced all my money is well spent

Bill Quango MP said...

If I can remind you CU. One of our posts on cuts to libraries, suggesting just a 10% cut to the national budget was met with horror by our readers, the Guardian who trailed it, and anyone else who linked. For a top 10 ranked all time post very few agreed with me that it should be done.

BTW - I owe you £20. I admit defeat. I'll never find another acceptable middle class tax benefit or service to give up.

{the one we found was was that stupid child trust fund that Brown set up to make every parent a labour supporter by bribery. It was expensive, pointless, and as transparent a political grab for the middle classes as a glass pane, expertly polished by highly skilled craftsmen and artisans, that also happens to be open. Apart from Polly Toynbee no one else missed it.}

Electro-Kevin said...

BQ - Libraries are a mark of civilisation, surely ?

There are many things which should be cut before this.

Blue Eyes said...

Of course there are 101 things which *should* be cut before public libraries. I bet public libraries aren't even very expensive.

The problem which must be tackled and which Cameron seems totally unwilling to tackle is the bureaucratic machine itself. When ministers go to their departments and get them to draw up lists of things to be cut are they really expecting the civil servants to come up with sensible priorities? Cameron needs to take charge a bit here. Clearly he has the occasional reformer (Gove) but the rest are just allowing the civil service to run rings around them.

Brown filled the bureaucracy and quangos with anti-Tories. They are hardly going to make a Tory administration go smoothly. And the LDs cannot be expected to do anything other than act as a brake on reform. Seriously Cameron, you need to get a grip.

James Higham said...

How would the Mail know ahead of regular sleuths?

CityUnslicker said...

great comments all. The cuts what cuts I do disagree with - there have been cuts the issue is the social welfare 'stabilisers' mean we get into troubel when we cut any jobs. It's a very clever socialist design that has all economists fooled too - all cuts lead to spending increases and a worse debt position. More spending just leads to a worse debt position. Genius ain't it?

CityUnslicker said...

great comments all. The cuts what cuts I do disagree with - there have been cuts the issue is the social welfare 'stabilisers' mean we get into troubel when we cut any jobs. It's a very clever socialist design that has all economists fooled too - all cuts lead to spending increases and a worse debt position. More spending just leads to a worse debt position. Genius ain't it?

hovis said...

Bin the NHS - corporate profits dressed in socialist clothes

Anonymous said...

But already the educated middle-classes are fleeing England, leaving only pensioners, chavs and immigrants (often illegal).

A family in the SE needs a £50K income to get even slightly ahead of benefit claimants who know how to work the system, legally too!

Anonymous said...

Everyone mentions the debt and how it needs to be cut - but forgets that it was bailing out the bankers that got it there. [Cue: abuse]

Now take energy policy and an insightful comment today about Joe Public having to cough up money for high fuel prices for "infrastructure investment" as they can't get investment cash from the City.

Banks totally f**ked the economy and we're now pointing the finger at anyone other than the culprits. [Cue: even more abuse]

hovis said...

Anon: the banks did bugger things up with the happy aquiescence encouragement and encoragement of the the govt of the day.

Bank losses should have been taken but then I doubt most people who say it is all the banks faukt would have prfered to lose everything as debts were liquidated.

Even if we banks had been nationalised we'd still have to cut the structural deficit which is public spending/big govt. Without the financial services growth of the naughies it would there would have been less of a fig leaf to pretend all is well. So I see your points as at best moot.

Why you expect abuse I canot fathom.

Steven_L said...

I thought the EU only allows a 22.5% maximum VAT rate?

As for Scotland, it does go its own way. It refuses to do anything they do 'south of the border' which means good ideas are rejected on the principal they are 'English'.

Being white, male, heterosexual etc I'd never been on the receiving end of racism before I moved up here. It's hillarious, they think I don't know what I'm doing because I'm English, so they just pay me (more than the English did) to do nothing!

Blue Eyes said...

"the issue is the social welfare 'stabilisers' mean we get into troubel when we cut any jobs"

I'm not sure I quite get this. Unemployment has been falling and employment is up. The public sector has shed some jobs and the private sector has created some. Why does welfare spending rise under these circumstances as you say?

CityUnslicker said...

Be - Unemployment jumped, you point out the direction correctly, but the jump happened in 2008, plus part-time jobs get tax credits and people who stay out of the seeking work figures still get benefits - like asylum seekers for example.

Blue Eyes said...

Yes but we are talking about changes in spending since 2010 when the government supposedly started slashing public spending. Unemployment is down, employment is up. You say that spending cuts have been more than made up for by increases in welfare spending because of worsening employment. I don't understand how that works.

CityUnslicker said...

the part-time element is key to this - tax credits and people opting out of seking work but needing benefits - NEETS etc.

Just look at the govt graphs - welfare spending continues to balloon whilst other spending is cut - overall effect is a slight increase in spending for this year and overall a net reduction of about £40 billion - but that seems to have ground to a halt this year.

Blue Eyes said...

So that would make Ed Balls right that it is cheaper for the state to employ people than to pay them benefits?

Sounds like benefits are quite generous!

Steven_L said...

Single guy, in the south east or london, housing benefit and council tax benefit can easily total 750 quid a month. Plus another 280 or so JSA and that's 1030 or so. Whereas a typical council job paying 22k a year makes you about 450/500 quid a month better off (or 300 if you pay pension and student loans).

If you're a single woman with 2 kids in the south east there's no contest, if you didn't buy a place in the 90's slump you're better off on HB and tax credits.

Agence communication said...

"" The real truth is that the Government is still far too big and is spending more money than it has by a colossal amount. The crisis of 2007/8 will forever be a denouement moment for the ear of socialist spending for it came as the endgame for social welfarism was beginning due to the ageing of Western societies.