Philip Booth

There is no reason to raise VAT

It is very clear that the government cannot carry on borrowing at current rates and the coalition’s proposals for reducing government borrowing are prudent. However, today’s VAT rise is unnecessary.

As has been said before, we did not get into this situation because the government taxes us too little. Ever since Gordon Brown abandoned his self-imposed restraint in 2000, government spending, financed mainly by stealth taxes and increased borrowing, has expanded rapidly to its current level of over 50 percent of national income. As such the whole of the balance of fiscal adjustment should come through spending cuts.

The coalition’s spending reductions have reflected political expediency, not sound economics. The aid budget will rise, despite the empirical evidence that shows the damage that foreign aid does to recipient countries. The NHS has been ring-fenced, even though it has experienced huge budget increases and has a shocking productivity record. Pricey gimmicks given to pensioners such as the Winter Fuel Allowance, free television licences and free bus travel remain in place, whilst the government has promised to increase state pensions in line with the higher of inflation, earnings or 2.5 percent – the “triple lock”, as the government calls it. This last profligacy is wholly unnecessary at a time when much of the working population is experiencing real wage reductions.

A 2.5 percent trim of the NHS budget, not increasing the aid budget, the abolition of the pensioners’ gimmicks and not implementing the triple lock would enable the government to cancel the VAT increase with considerable room to spare.

If the government insists on increasing taxes, then there are better candidates than a general increase in VAT.

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