...a blog by Richard Flowers

Friday, June 17, 2011

Day 3819: If Mr Balls Wants a Tax Cut So Bad… Why Doesn't He Propose Cutting LABOUR'S NI Rise?


When Mr Bully Balls, Labour's master of monetary mayhem, performs a complete U-TURN from "spend more!" to "tax less!" the real question is: why don't people just LAUGH?

But, okay, let's look at tax changes this year:

The Conservatories COST you £390(*1) a year by putting up your VAT.

The Liberal Democrats GAVE you up to £200(*2) with a rise in your Income Tax Allowance.


Hard Labour COST you £188(*3) by putting your National Insurance up. Oh yes they did. Mr Alistair Dalek did it a year in advance.

So who's REALLY "putting money back in your pocket"?

Look, just SUPPOSE that we had twelve billion quid to burn, and that completely reversing all the pain of narrowing the deficit we've done so far wouldn't panic the markets, terminate our triple-A credit rating and kick interest rates through the stratosphere…

Would the BEST way, if you want to boost spending by "putting money back in people's pockets", would the BEST way REALLY to be cutting a sales tax that – particularly in a time of high inflation – may or may not be passed on to the customer, rather than, say, a DIRECT tax cut.


The IDEA of a short-term VAT cut to stimulate the economy is supposed to work like this: first, things cost less, so people buy more, which means more production in the economy for the same amount of money going around, which means more jobs and so eventually more money going around; second, and according to the IFS possibly more important, the KNOWLEDGE that prices NEXT YEAR are going to go back up again encourages people to spend money NOW rather than saving it till next year.

The only REAL problem with this theory is… it DIDN'T WORK.

(And even supposing that it HAD worked, then it's not a trick that you can KEEP doing, is it – if you encouraged people to spend more in 2009 because the VAT rate was going back up in 2010… and then encouraged people to spend more in 2010 because the VAT rate was going up AGAIN in 2011 – which it did – then how are they supposed to have any spending LEFT to "bring forward" in 2011 for when the VAT goes back up yet again in 2012?)

But studies showed that when Mr Dalek cut the VAT rate back in 2008 that most people DIDN'T bring their spending forwards.

Add to that the evidence that, after INITIALLY cutting prices, retailers put them back up on the sly and that it actually COSTS businesses a whole lot of money if you make them change all their pricing at the drop of a hat (it may not seem like much but changing all those price tags and reprinting all those price lists and altering all your advertising… it does add up), then you have to ask, HOW is this "stimulus" supposed to stimulate ANYTHING?

…Actually, what I suspect is that Mr Balls announcement is a pretty CYNICAL attempt to provide a STIMULUS for media coverage of the Labour Party.

Hard Labour had had a fairly DODGY week: the "Balls Papers" were pretty much the SMOKING GUN that revealed that Hard Labour KNEW that they were spending too much – but carried on spending anyway; Mr Potato Ed Millipede's leadership was called into question after a year of doing nothing; and Mr DAVID Millipede's "leader's speech" was leaked to the press by persons unknown (aka Mr David Millipede) furthering rumours of a poisonous fraternal rift. Or, since this is the party of Lord Blairimort and Mr Frown, ANOTHER poisonous fraternal rift.

The REAL cause of Hard Labour's apparently-sudden crack-up is the dawning realisation in the media that they are in fact IRRELEVANT. Any SERIOUS debate about policy is between the Conservatories and the Liberal Democrats. Hard Labour have NOTHING to say!

Apparently Mr Potato Ed has been complaining that no one pays attention to his speeches. Well, in if he wants people to LISTEN, he ought to have SOMETHING to SAY.

(Take this DRIVEL about Labour "being seen to be the party of bankers and scroungers"… when he talked about the SQUEEZED MIDDLE who'd have guessed that he meant to blame the recession on the rich AND the poor!)

So Mr Bully Balls, a NINJA of the black arts of spin, was after a quick headline-grabbing stunt to hastily re-establish the cover-up and make it LOOK like they are contributing to the national conversation. When the truth is, for the moment at least, they are full of sound and fury. And signify NOTHING.


*1: according to Mr Potato Ed's claim that average families would be £7.50 a week worse off

*2: a £1000 increase in the personal allowance is worth £200 a year to a taxpayer on the basic 20% rate

*3: based on average earnings of £26,000, a 1% rise in National Insurance costs you £188

NB: NOT comparing like with like – Mr Millipede was taking about HOUSEHOLDS; the other figures are based on INDIVIDUALS. Adjust your thinking accordingly.

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