...a blog by Richard Flowers

Wednesday, May 27, 2015

Day 5259: Is George Osborne Planning a Sneaky VAT Rise in the Emergency Budget?


So Mr Balloon has promised that he'd make it the LAW that he won't let Gideon put up Income Tax, National Insurance or VAT. They'll change the law to stop them changing the law.

And then Master Gideon announces an "emergency" budget.

Yes, yes, a lot of people have made the joke that he needs to get in quick to start clearing up the horrible ghastly mess left by the previous government's budget in March. But really, WHAT emergency?

MAYBE he has an EVEN MORE SLY purpose: get in quick BEFORE Mr Balloon's daft law gets on the books.

A one-off increase in VAT from 20% to 22.5% would raise, I estimate, about £14-£15 billion in extra revenue, which immediately covers the whopping great unfunded gaps in the Conservatory manifesto: £8 billion for the NHS; £7 billion for tax cuts.

(Currently, VAT at the 20% rate brings in approximately £111 billion – 22.5 is 12.5% more than 20, and 12.5% of £111 billion is actually about £14 billion more, but close.)

[IFS November 2014, pdf]

Announcing that he's "found the money" for the NHS would make it EXTREMELY difficult for Hard Labour to reply, especially if he caught them on the hop, especially especially in their current state of leaderless disarray, even though of course he is very much robbing the less well-off working Peter to pay for the health service used mainly by the slightly better-off pensioner Paul.

But then I'd expect him to bring forward the increases in personal allowance, (and with a hand wave, also a hike in the higher rate threshold making for a bigger cut for the better-off 40% tax payers). He'd claim to be reducing the taxes on working and shifting the cost to spending. Or even, if he's in his most purple, pompous mode, to "profligacy".

And with prices falling for the first time since 1960, he might go so far as to try to excuse pushing up prices as a "counter-deflationary" measure!

Not that anyone facing a 0% (or less!) pay rise this year will end up thanking the Chancer for bringing back inflation.

(And although we should remember that because food and housing and a lot of travel is not VAT-able, it's a bit complicated as to just how regressive a tax VAT actually is, but raising it to give a tax cut to the better-offs is almost certainly not going to work out "progressive"!)

It would look like a work of genius – the papers would certainly all hail it as such – and the actual consequences of derailing the recovery with another VAT driven inflation spike wouldn't show up until we're already deep in the hole – which is pretty much what he did the last time someone let him try to ride the economy without stabilisers*.

Then it would just remain to pass the buck to Mr Iain Drunken-Swerve to figure out how to slash an impossible £12 billion from welfare, and with his free hand pass the McBuck to Ms Nicola the Insturgent with full fiscal autonomy and the power to deny her fellow Scots the tax cuts Gideon's just lavished on the English.

Gideon sits down to rapturous applause and a big step forward in his potential leadership ambitions, while Bojo sulks on the back benches and recently-stabbed-in-the-back-by-Gideon's-ally-Sajid-Javid Ms Teresa "Nuts in" May looks like she's swallowed another wasp.

Or maybe he'll just offer us some tea.

* Last time, of course, we had Liberal Democrat Danny Alexander able to come in and restart some Keynesian investment spending (which Labour's Captain Darling had cancelled, lest it be forgotten) and bring back some growth; goodness knows who can save us this time!

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