Ed Balls, the shadow chancellor, recently called on the coalition to implement a temporary emergency reduction in the VAT rate to jump-start the economy and boost consumer confidence.
During a speech outlining the opposition’s economic policy, Mr Balls said a cut in the VAT rate would immediately impact household budgets, giving umbrella contractors more spending power. Acting now is a better option than hoping for the best, he continued.
Ed Balls told the LSE that Labour’s VAT reduction contributed to a boost in growth and as a result the deficit was £21 billion lower than had been expected. If Osborne reversed his increase now, he would be helping people who are struggling to cope with rising prices and small businesses that are seeing reduced demand.
Retail sales in the UK fell by 1.4% in May after a 1.1% increase the previous month. However, April was unusual in that we had two consecutive four day weekends and people were spending on royal wedding memorabilia and street parties.
David Cameron countered Balls’ demand by saying that cutting taxes would increase the fiscal deficit.
The previous government did reduce VAT temporarily in December 2008. The Conservatives later said the 13-month reduction was an expensive failure and as soon as the coalition came into power, George Osborne announced an increase in the VAT rate to help tackle the deficit. The Chancellor says he does not intend to reduce the rate again, saying the increase to 20% is a structural change to the UK’s tax system.
There are now concerns that high earners might leave the UK to escape the high burden of taxation.
UHY International looked at tax data from 19 countries and discovered that Britain had the seventh highest tax rates for people earning in excess of £122,000 and those earning less than £15,250 per annum.
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Image: sometimes you just need to put the past away and move on with your life by Evil Erin
