By Maeve McGoldrick
I attended the briefing on the Pre Budget Report, given this afternoon by the Institute for Fiscal Studies. Two major factors arose from the cut in VAT from 17.5% to 15%, which will cost £12.4 billion. Firstly this cut will give people immediate money, but there is a question mark over what to do with this money – save it for future tax rises? If the future tax rises will even affect those who choose to save? Will government combine tax rises with a cut in public spending?
Secondly the price drop in 2009 is aimed at increasing spending. VAT is an expenditure tax and will only benefit those who spend. This begs the question of who will spend and who will save? Is it better to spend when prices are cheaper or to save for the future when taxes will rise? All complicated and full of question marks and assumptions.
Speaking to a journalist from The Times as we entered we got talking about the unknown and in these uncertain times neither party could produce a pre budget report without any question marks. Goverment has been radical in its borrowing and is pinning a lot of hope on public spending to get the economy growing again. In a Conservative blog entry pre the Pre Budget Report ‘This is how to cut VAT’ Richard Hyslop calls for a more targeted but larger percentage cut in the VAT that is imposed on building repair and maintenance work. He highlights examples from other countries indicating that we should be learning lessons from what works around us:
Los Angles’ approach to the informal economy is about providing help for the vulnerable worker and a greater crackdown on rogue employers. The director of economic recovery talks of better education and support to track the informal economy and reverse the trend.
A chief economist Jack Kyser said “We’d estimate the underground economy would be very, very significant, it represents a huge entrepreneurial (economy), but lots of tax revenue is being lost by local government at a time when they need all they can get.”
Yesterday Lord Myners, The Parliamentary Secretary, HM Treasury gave a written answer about reviewing taxes highlighting “the current size of the informal economy and its potential for reduction.”
Following the successes of other countries a package of benefits and tax changes could help to harness the informal economy which is estimated to be worth 12.3% of the UK GDP. With greater collaboration between different departments government could also be spending to generate a growth in the economy.
That’s what we are camapigning for at www.neednotgreed.org.uk.
