Taxes to fall and then rise

Jam today and pain tomorrow. Tomorrow of course may be another government and thus beyond the planning (?) horizon...

A rise in VAT from 17.5% to 22.5% would, of course, create havoc with the 'independent' B of E's inflation target when it happened. But then, with the Prime Minister telling the Bank when to change interest rates, and announcing it in Parliament before the Bank announces it, we all know that particular ship has sailed.

A shift away from the spurious and (in the long term) illusory economic growth from fiddling around with financial instruments, would be no bad thing. Heaven forbid we should actually invest in apprenticeships, and make things people want to buy. Germany has shown that it is possible to be a modern western state, and still have a high-skill manufacturing base.

But that would require more brains, and more long-term thinking, than a nation of estate agents and "City boys".

Crikey - If Darling even thinks about raising VAT the economy will go into slump immediately.

Give him a ring before it's too late!

What he should do - and I am sure it would bring immediate benefit - is REDUCE VAT from 17.5% to 12.5%. VAT is the biggest Government-invented block to sales ever instrumented. The cash-economy will grow stronger too if he hints at raising it. He has no idea how strong that black sector is!

Mention repossessions 12% increase and foreclosures and no-one doing anything to stop it while you're on the line.

Just say 'if you want to win the election - stop the dispossession'.




GC

So in other words lets bribe people with tax cuts today and defer tax rises till after the next General Election.

If Labour are still in power then they will worry about it then and if the Tories get in at least this should save a few more labour MP's from losing their seats.

Never in the field of financial planning have so few spent so much to try to con their way to a general election victory.

Boom and bust is here to stay!

I think predictions that a future VAT rise to 22.5% will raise 20bn are pointless as they are based on too many assumptions on future consumer spending and confidence.

We should be worrying about how we can replace the money which was generated by through the City of London with something that generates sustainable and tangible value e.g. Engineering or Manufacturing

What do you know? Tax and spend from a (New) Labour Government!

Welcome back to the 1970s...

Does Darling Alistair really think he is going to fool us all and get the economy going again? No doubt, as usual, the BBC will be doing their bit to promote him, his boss and their policies but you can only fool some of the people some of the time etc........

NOT a Great TAX "Vat" idea.

We'll all spend and then STOP once the 22.5% rate is increased!

So another type of mini Boom n Bust.

If that's the type of solution we can look forward to then we really are all doomed.

I think Cutting Government spending which is part of the problem would be a far better solution! If ever a pound was poorly spent it's by Government.

Make the savings by cutting down all Government spending.

But that will never happen noses in the trough and all that!

I'm sorry, but am I missing something here. Surely if the tax cuts are directed at the lower classes (i.e. those most likely to spend it), are they not going to do this by using credit cards (adding to the debt that has brought all of this scenario about) and then drink/smoke the actual cash away? Even if they don't do this, the extra money will surely go straight into the coffers of the power generators (and back to the Government!) whose bills in January will be huge. Only they will default on the bills because they have frittered the money away on consumables, so adding to the bills of those who get the least help. I cannot see us getting out of this in one piece.

Well if it is VAT, Sterling WILL fall.

Why?
Because it will be seen as highly deflationary.

HIGHLY.

It will knock future growth by 1-3% GDP.

In other words.. NO growth for 8 to 10 years?

Yes: a budget for jobs and growth...not..

Good analysis - I am sure these forecasts are on the button.

But, if VAT is likely to rise sharply in the future, that will mean that businesses like mine will, more than ever, be major unpaid tax-collectors. Well, not me . I for one would not be prepared to operate under such conditions.

Therefore, if this forecast of future VAT rates is true, I shall either close my business or move it overseas, because the UK will be heading into a fiscal environment where running a company will no longer be worth the effort.

If others think as I do, where exactly will future tax revenues come from?

So the Financial Service sector turns out to be one big creative accounting exercise, an asset fairy story, a total failure, bankrupt and bankrupted from top to bottom.

Not far behind is the retail sector all following the construction sector into the economic abyss.

Who now says that London is the key economic driver in the UK?

No one!

VAT should never be increased, it should be cut to 12%, as it affects every one. It should be time to tax the supper rich, 60% on income above £1m and increase in inheritance tax above a certain limit say £1m per child and all loopholes closed.

Also it is time to look at benefits, benefits should be increased to the needy but for others who doesn't want to work it should be cut.

So we're in this mess after a decade of spending too freely, and must now re-discover thrift.

But not just yet.

For now, hang on to your debts. Pull out your purse, and spend-spend-spend. Don't put money aside for your pension - the country can't afford a saving habit. Of course, the country won't be able to support you if you don't save either.

The final message of the Gordon Brown era seems likely to be Live Fast and Die Young - you know it makes sense.

Quote Peston#
"And the bulk of the tax cuts will be directed at those on lowest incomes, partly because they have the highest propensity to spend - for the good of the economy - and also for reasons of social justice."

Not forgetting that they are also likely to be Labour voters. Election bribes have always been at the heart of labour taxation policy.
The problem for labour will be that they will pile up votes in safe Labour and loose the marginals in the South.
Add that to loosing Scottish seats and it could be a very different result to what they were expecting.

You suggest we should be encouraged to spend rather than save. But surely a big increase in saving would increase the funding available to banks. Is it a serious suggestion that the correct response to a problem caused by debt-fuelled consumerism and property borrowing is now more consumerism.

Furthermore, a hike in VAT to "repay" the borrowing would be one of those temporary tax increases that never gets reduced.

This is bonkers. How far can a country mortgage itself before this itself becomes a sub-prime debt? Is it at all possible that countries stop lending to the UK and we can't pay our doctors, teachers and police?

Doubt they would nationalise the banks as the first thing a Tory government would do is privatise them.

So anyone vat registered benefits. Sounds like a cunning Tory plan.

Incidentally, rather than planning to raise VAT to business-destroying levels, has AD considered reducing public spending. It is called "living within your means" - too much of a novel concept for this lot, I suppose!

Income tax / National Insurance cuts paid for by VAT hikes would be a great idea.

Can't see why the Govt. should delay the VAT hikes though, bring it in now.

We need to put more pounds in people's pockets to pay for essentials such as utility bills, food and mortgage repayments, so taxes must come down...

We can't risk a currency attack, so it's got to be either Euro entry which might look like panic now (should have been done a while back) or tax hikes from somewhere, or maybe both (Euro later).

Surely the country already has enough pointless imported electronic gadgetry, designer clothes, 4X4 gas guzzlers, and other luxuries. This crisis ought to be a wake-up call to us all that these trinkets are mostly useless tat. We should enjoy the cheap and indeed free things in life, and be discouraged from wasting money on mainly imported dross.

TAX them with VAT at 30%, and abolish National Insurance- a tax on jobs. Heating fuel, and power, should be zero rated, however. Petrol VAT should be 20%, Diesel VAT should be cut to 10%.

We need to turn this mess into an opportunity to mend our consumerist ways, or we are doomed, doomed.

How can the government think about increasing VAT and at the same time stimulate people to spend?

What needs to be sorted out is the following: -
1/. Confidence, government to public, bank to bank and bank to business. This can be achieved by government offering guarantees to banks who lend to business and grant mortgages at reasonable interest rates to secure borrowers e.g. re-mortgages
2/. Government support for mortgage payers, it is cheaper to keep people in their homes than re-posses and leave homeless to be housed by local authorities.
3/. Ending supermarket and essential service company cartels.

Tax cuts are a bribe and will not encourage people to spend and companies to invest, all that will happen is that people will save (even though rates are low) because they are afraid of loosing their jobs (Japan had the same experience).

The Chancellor is I am afraid out of touch with the 'common' citizen of the U.K. and this is why he is so far away from actually sorting out our economic problems.

Finally, when will you challenge the PM who continues to distance himself from blame for this crisis. U.K Government reducing the powers of the industry regulator is the REAL reason behind the madness of the past 10 years, not the failure of the USA sub-prime market.

New Labour and the City?
Fools governing fools.
Result...disaster.

Wow. Followed by ouch.

That is quite simply an outstanding, and outstandingly honest blog.

I suspect a Treasury briefing behind at least some of it to soften us (the beloved taxpaying public) up in advance of the horrible truth on Monday. Even so, well done for stating some very very hard hiting facts: the government's industrial policy has indeed been exposed as an utter sham. Please remember this as you comment on Labour and government policies going forward.

Reality is clearly going to hit home in a quite incrediably painful way. The admission of future tax rises and spending cuts blows Labour's recent damning of the Conservatives' critique and response far out into space: I hope Labour like humble pie. I suspect they are going to be eating a lot of it.

That said, I also respect the Chancellor and the Treasury for at last facing up to reality and, rather than simply politicking, admitting some very unpleasant truths. I actually have a little more confidence in them as a result.

However, given the already huge borrowing we are going to undertake as the 'automatic stabilisers' kick in, can we really afford a further fiscal stimulus right now? Q2 GDP evidence from the US indicates it will be costly, and short lived: ie a waste. Bottom line: I has suspected the Tories were right; now, I know they are. We simply can't afford to borrow further, and Darling and team should go the extra mile and recognise that.

Finally, and very simply, I think this is so bad it constitutes a resigning matter for the Prime Minister: he has steered this country's finances into crisiss. He needs to be hounded put of office in disgrace.

We need to reclaim reality and, how painful, deal with it.

22.5% vat I would hate to be a pensioner when this hits, this budget is a disaster for the low paid in the future.

Someone needs to highlight just what this will mean to ppl.

the less Taxes and the smaller the size of the Public payroll, the better for the Economy and for us taxpayers.

It all seems so futile- raise VAT- reduce VAT- create mini booms and bust- surely this is exactly what is wrong in the first place- create a false economy-imaginery prices/profits then take them away all with a hefty price to pay by someone- as long as its not you.-each and every attempt seems to me from the "solutions cuboard" a short quick fix to a problem that is not going to go away without a lot of pain and suffering.
Anyone with a modicum of sense will be hunkering down and trying to get through this mess- not going out buying high ticket priced goods.
The hole system is flawed-the polititians/bankers all have their own agenda-and this does not include you.

I'd thought for some time that when HMG needed a few bob that they might crank up VAT because at 17.5%, I believe it is a few percentage points below the EU average.

To pick up on another point that Robert made, it also seemed to me that the UK economy has been dangeroulsy unbalanced for the past decade or so with the unhealthy emphasis (and tax revenue streams) from 'financial services'.

For some reason, a comment, I believe attributed to a Rolls-Royce director, rattles around in my head:

"You either dig it up, or grow it and add value to it, the rest is just moving it around".

'Moving it around' does not seem to work for us anymore so maybe we ought to find a way of actually making things again.

But that will be easier said than done when most children apparently want to be 'a celebrity' when they leave school rather than be useful people such as technicians, engineers or scientists.

"For the sake of transparency I should say that I don't know that there will be a VAT rise.

But a deferred increase from 17.5% to 22.5% in the VAT rate would raise around £20bn."

From that I think we can all read that Alistair Darling has already given you the lowdown on what he's planning and that this too shall come to pass.

Much like your blog a month or two ago where you said "This may be hubris, but I think the way to solve the problem would be for the Government to take large stakes in banks and be paid a very high rate of interest". And what do you know, a few days later this is what was announced.

Not foresight on your part - more like insider information. This blog seems to be the Government's new leak machine of choice, where future policy decisions are "suggested" by Robert to sound out opinion and get people used to the idea. Robert does this for reasons of hubris, as he can then claim he had the idea first, even though it's no such thing.

It's a little scary though - the Chancellor's way of raising tax is to raise sales tax just when sales may finally start picking up again. Sounds a bit like the circular reasoning of "people have borrowed too much, but let's carry on lending at 2007 levels anyway".

We have to live within our means!

If I earn less then I have to spend less, not borrow more in the hope that I'll earn more in the future. That is the route to ruin.

We've all been living in a FALSE economy for a decade at least whihc has been pumped up on steroid like injections of Gov't borrowings and the Gov'ts tolerance of the boom in private debt too. Quite simply governance has been poor which is the real reason Brown will get booted out of number 10 with a massive kick when the time comes!

The last ten years has not been an economic miracle............the abolition of boom and bust.............the parting of the waves..............it has been a disaster in the making gathering momentum year by year.

The simple facts are that we need to live within our means at some point not keep putting off the day of reckoning by applying for yet another national credit card.

I keep saying and saying if Gordon Brown had followed Ken Clarke's strategy there would not be a need for any of this desparate scramble to shore up the public finances through mega borrowing because the public finances would be so SOUND by now and would possibly be in a substantial surplus.....like other counties.

In fact Robert.....hey Robert Peston if you are reading this please can you do an analysis of what would have happened to the British economy over the last 11 years if Labour had kept to Ken Clarke's spending, borrowing and tax plans for the entire duration. Would be be in surplus by now? And by how much? I daresay the results of that exercise would prove beyond doubt the need for a fiscally responsible Conservative Government for the next 10 years to get us out of this mess.

The fact is we have an overbearing and expensive non-producing state sector in the country and it time to let the wealth creating entrepreneurs free by reducing regulations and directives and business taxes. All the Gov'ts taxation reducing effort should be aimed at business...the engines of economic growth...........but I daresay this Gov't will borrow billions and spend it in completely the wrong areas in a sticking plaster fashion because they have not got and have never had an industrial and economic policy which seriously rewards hard work and the entrepreneurial spirit that lies within many of us. They do not understand human nature at all.

Darling will announce the final act of Browns 11 year march to national bankrupcy on Monday...........................

No:5 "We should be worrying about how we can replace the money which was generated by through the City of London with something that generates sustainable and tangible value e.g. Engineering or Manufacturing".

An excellent point, but how is any British company going to catch up with German quality? It would take two working generations to come close.

# 11

Not sure why you see an increase in VAT as an admin issue. Surely the admin headache is the tax paperwork generally, whether VAT is 2% or 20%. Collection is then simply a question of the amount. Higher VAT is actually good news for you, isn't it? Well, so long as you're on a cash-basis for VAT payments. That way don't you have had to have received the VAT before paying it over to HMRC? In which case you get use of it (and the interest) until you pay it over.

I'm basing all this on my experience in Ireland. I pay over VAT monthly via direct debit, but can adjust it each month, and hence effectively use the VAT for cash flow management. I only have to do one VAT return a year, and so long as I've paid at least 90% of what's due over the year, I don;t suffer interest/penalties. Is it vey different in the UK? Incidentally, VAT here has just been increased in the Budget (ie increased now!) from 21% to 21.5%.

And here comes the final proof of the tired old adage, those who do not learn from history are doomed to repeat it.

Thanks, I'll get my billboard and ticket to the Grundig works ready.

I have read this blog on several occasions and find that it's very good at pointing out what's wrong but never offers up any solutions.

Perhaps now, all those who resent the fat city slickers with their big bonuses will have a re-think - we need their huge bonuses so we can milk them. Perhaps we can have a Bring Back The Fat Cats campaign?

Just get Printing the notes....

Anyone who thinks we're going to get out of this another way is in LALA Land!

You know that is the ONLY option!

Governments are there in principle to govern for the benefit of the country in conjunction with the ideology of the governing party.
The economic mess the country is now facing is due to the mismanagement of this government over the years. It is all very well for G.B stating it is a global problem. A wise and competent government anticipates well in advance the warning signs of a economic decline and takes the necessary precautionary measures to weather the storm. For the government to advocate that the crisis could not have been anticipated is tantamount to wonder whether to buy presents at Christmas for your love ones.The government is hoping that nobody will look at the root causes of the crisis but will only focus on the remedial action taken by the government to nullify the crisis and thus reap the benefit stemming from possible recovery. Good housekeeping or crafty politics.

Whats required is
a 500% inflation rate- for the people with debt and appropriate pay rise.
Anyone with cash put it in a government bond paying inflation plus 1%.
Join the Euro.

Everones a winner

The government needs to encourage new businesses - tax breaks for new traders and companies.

Also reduction of red tape - I run a small business and the increased bureaucracy is getting out of control.

"I am certain that on Monday the chancellor will also announce a significant package of measures to stimulate the economy.

These will include tax cuts and spending increases funded by extra borrowing, equivalent perhaps to as much as 2% of GDP.

And the bulk of the tax cuts will be directed at those on lowest incomes, partly because they have the highest propensity to spend - for the good of the economy - and also for reasons of social justice. "

Is it just me or does anyone else smell an election coming up ?? At least, in the Philippines, they are more honest about it. They just hand out sheaves of Peso notes to the voters !!

Sorry Robert, but as an indirect tax, doesn't VAT hurt those on lower incomes more than the rich? Doesn't sound like a good election clincher to me......................

Adding extra VAT to the already crushing burden inflicted by Gordon Brown's layers of stealth tax would be a disaster. Excessive personal taxation is just one aspect of a business-hostile strategy which has eroded commercial diversity in Britain, exposing the economy to over-dependence on the financial sector, with predictable and inevitable consequences.

Successful parasites know when to stop feeding off their host, sucking harder is unlikely to bring a good result.

As a side-issue, what of the overarching aim to converge tax regimes across the EU? If VAT increases sharply, do France, Germany and Holland follow suit? - Thought not.

Anyone else think it's disgusting that a political party (Labour) will risk our future, merely to stay in power? All the time they are kidding themselves that it's nothing to do with them, it's all someone else's fault. It just happens that they are brilliant and can solve the problem. That they had nothing to do with. Of course.

A voter: "Your house is on fire'"

A politician: "Ah - no, in fact it isn't"

A voter: "Yes it is, I can see flames and smoke coming out of the windows and roof"

A politician: "No in fact what you are seeing is not in fact a fire. What you are seeing is the negative impact of the house overheating through the continued use, by other people, of parts of the house, that is to say heating systems, that are not fit for purpose of maintaining a steady temprature at all times throughout the house. The excessive heat occuring at the moment, giving you the impression of a fire, is about to come under control, and I have here a thimble of water that is my solution to the problem, and one endorsed globally".

A voter: "It won't work. It's obviously not enough"

A politician: "What we need right now is an experienced hand holding this thimble. How could you want an inexperienced hand holding the thimble...blah blah blah....self serving rhetoric..."

The return of the severely misguided ideas of Keynes is very troubling.

The idea that we can borrow this much and expect to just up taxes later is mindless! We need to allow the economy to adjust and stabilise, the best way to facilitate this is to cut taxes for ALL members of society.

Who do you think pays for the expensive services and products still produced in the UK? the low income earners? I think not....

The best thing government can do right now is shrink, but I fear we are setting up a situation where we could see massive devaluation of sterling (again good for people debt) just not the people who have been prudent (the very people who should be rewarded in these times!)

There are some great posts on here. The overwhelming consensus seems to be that raising VAT in the future would be a very bad mistake; many believe that Labour policy has got us here; and many think that spending cuts would be a better way of restoring fiscal balance.

I hope that Robert will pass on the apparent consensus that this policy idea is a duffer. My feeling is that fiscal rebalancing should be shared equally between tax increases (which are ievitable) and spending cuts.

Another thought is that Robert seems to assume that economic recovery will begin about two years from now. Perhaps this is the government view as well.

But what if this is wrong? My own view is that we are in a situation comparable with the thirties, so recovery may be five or more years away. What happens to government debt and ongoing deficits if this is the case?

Even if a near-term cut in VAT makes sense, what happens if the lower rate needs to continue not for two years but for five or more years?

It would be good if the Chancellor could be bold enough to scrap the 5% VAT on electricity and gas bills. They are high enough; but if he goes ahead and puts them up at the earliest opportunity, then there will be more poor than at present. Another point is that the "lower paid" pay very little tax anyway, and some not at all. I would not like to be in his shoes, and I'm sure neither does he!! So, he and the whole Cabinet will secretly be hoping that they are defeated at the next General Election, and can leg it for Spain there to live the Life of Reilly on their fat pensions.

Jam today and baked beans tomorrow. The day after tomorrow, baked beans to be rationed and the day after that, the ration to be cut. Isn't that the picture?

£40bn of funding for the government's £600bn budget already gone, debt interest on all its borrowing may double if it keeps up, who knows how much more tax revenue will be lost from a million or two people losing their jobs, as they surely will even under conservative expectations.

How much will the Treasury lose from the loss of the builders? Wasn't the construction industry the second largest contributor after finance?

We are all quite capable of working out what will happen to taxation. The projected funding gap would swallow several ministries without leaving a crumb, and somehow we have to make up the difference or persuade foreign investors to give us a payday loan. And on top of that, the government wants to grow its spending. Madness.

Robert, sticking five percentage points onto VAT will not even compensate for consumer spending cutbacks and deflation. The true tax increase for remaining tax payers would shock even Scandinavians.

31:

Good points, but I am not thinking in admin terms but, rather, considering overall incentives to business.

Consider every pound that a business generates in top-line revenue. First deduct VAT. Then corporation tax. Then income tax on the sums paid to the owners or shareholders of the business. A lot more than half of every pound goes in tax, even before the owner or shareholder spends his income (more tax there, of course).

Many businessmen are likely to feel that they are paying a lot more than half of top-line revenue to the government, whilst taking all of the risk (and stress) themselves. The worse this gets, the more the incentive to run a business diminishes, and the worse the risk/return equation becomes. We need to encourage business formation and growth, not deter enterprise.

My fear is that adding ANY further tax burden on business will destroy competitiveness and incentive. I believe that as a society we need to encourage, not deter, wealth creation.

42 Highburyfan:

Brilliant post!

drew_lg @ 30

I think it would take more than two generations to catch up with the Germans quality engineering.

In the mid-1950s, the BSA company was the biggest motorcycle manufacturer in the world.

However, the BSA motorcycle design and development engineers got hold of a new German NSU motorcycle and took it to bits (as recounted by designer Bert Hopwood in the book Whatever Happened to the British Motorcycle Industry).

They immediately saw that they were in big trouble because BSA was churning out ancient designs on machine tools that had been clapped out by WWII use, whilst the NSU was a brand new design crafted using new American machine tools (Marshall Plan funded).

The BSA management, including the notorious Dockers, refused to commit sufficient funds to design and develop new models.

BSA more-or-less went bust over the following decade.

If you couple that with the total failure of our politicians to develop the third 'technical' stream of education then you can maybe get a glimmer of understanding as to why we are where we are today.

So, the poor benefit now with tax credits, I wonder who's going to pay those tax cuts back?

The Poor? Nope!
The Rich? Nope!
Muggins > 30k / per year? Alrighty then !!!!!

hi Robert; you're probably right that there will be tax cuts now and tax rises later; deflation in '09 and hyper-inflation sometime later. Maybe we could make all this into a kind of Gaia Theory of Economics, where any action must lead to a bigger reaction. Which suggests that encouraging reckless lending and borrowing right now isn't the greatest plan, given that it's exactly what got us onto this rollercoaster ride.

But instead of speculating about little details like the future VAT rate and other short-term actions by our largely powerless politicians, could you use your connections to try to find out the causes of some of the big things that are happening today/this week and let us know? Honda have announced they're closing their Swindon plant for 2 months - what does that tell us? Citigroup are on the ropes in NY and might be gone by Monday - what does the market know about their toxic assets and other possible defaults and bankruptcies? It would be nice to get more analysis from the BBC instead of so much political gossip.

Since nobody seems to know what is going on, or if they do aren't willing to tell us, I've worked out my own index for predicting future economic trends, which I'm willing to share. My S&P500 is based on Somali Pirate activity. For instance, their ransom demand of $25m for a supertanker-load of oil indicates a continued sharp fall in the price, which seems a reasonable prediction. In fact their whole approach seems remarkably well informed. They have a good business model for tough times and seem fairly recession proof. They are not investing their earnings in bank accounts, equities or treasury bills but keeping their assets in US$, gold, silver and other real loot which they can bury on a beach and dig up later. And when on dry land they drive Toyota pick-ups rather than any of that rubbish built in Detroit.

Although many of us live in built-up areas away from the shipping lanes, we could do worse than learn some lessons from the SPs. Plan for tough times ahead and batten down the hatches. Watch out for a bargain. Be prepared to haggle but try not to hurt anybody to get what you want. And remember not to smoke on deck.

8.5% of GDP equates to about £110 billion.
National debt is about 43%(less if you discount investments in Banks). National debt in all the other leading economies is higher that 43%, Germany's is about 63%. That means an increase in the national debt of 8% equates to 51% still well below all the other leading economies.
The maastricht criteria stipulates national debt must not exceed 60% of GDP.
Surely all this means we can afford the fiscal stimulus compared to the rest of the leading economies, especially the European ones?
Why is the UK perceived to be in such a poor position economically, is it just down to our pessimistic glass half empty mentality?

Fact: the UK is still the 8th largest exporter of goods and services in the world.

#33 "I have read this blog on several occasions and find that it's very good at pointing out what's wrong but never offers up any solutions."

Far from it, Sir. Many have offered up the *real* solution !! Call another general election immediately !!

All that had been discussed are the symptoms. It's the disease that needs curing. And the cure is another general election !!

Having said that, will the operation be a success but the patient died ??

29 - many public services are under staffed. How will services we expect be improved?

Don't forget the public sector is a massive customer for the private sector.

Maybe with financial services being brought down a peg or two other sectors will get more consideration in our national policies.

Most of the UKs troubles stem from the money expansion policies of Alan Greenspan. The UK government, especially Gorden Brown, were happy to ride on the tide of funds sloshing around the system. The public accepted all the hype, no more boom and bust, easy credit fuelled personal debt and easy mortgages pushed up house prices into nonsensical values.

We are paying the price. Is this perhaps a good time to re-evaluate some of the basics of socialism. Bring them up to date certainly, but with a view to a more sane approach to finance, both at the personal level and nationally going forward.

I can't see that handing more cash to the poor via tax credits will have any effect. The poor might be inclined to spend.... but on consumer goods? Apart from clothes almost everything is imported and will rise in price with the fall in sterling.

So it's my guess the recipients will spend it on booze and smokes - or, if they have any sense at all, save it for the day that VAT rises as it almost certainly will.

Hmm. The government needs to cut spending and get its books in order? How about ending a few costly wars here and there. Cut government spending on Quangos and think tanks and get rid of all the government non-jobs.

Maybe charge a few windfall taxes on energy companies that are still charging through the nose, and posting record profits despite the fact that oil has dropped to 50 dollars a barrel.

Maybe auction off the Royal Family, clear out the palaces and the soon to be empty office buildings of Canary Wharf and convert them into shelters to deal with the hoards of homeless caused by all the repossessions.

Should help save a few quid.

Maybe scrap the TV license fee as well. The BBC seems to have become the PR machine of the government these dark days.

If the purpose of tax reduction is to stimulate the economy we need to reduce VAT....any other tax reduction is likely to be saved, not spent.

Cunning plan...
VAT reduced to say 15% and then restored to its current level gradually over the next 18 months or so, each time the government pre-announcing when the rise will take place, thus creating extra demand prior to the increase.

You read it here first...

oh and the scrap the Olympics before its too late. We'd be better off if we gave those to Iran.

Good grief! If the actual PBR comes out like that the papers on Tuesday will make horrific reading. Interesting RP's line about how much tax was paid on those city bonuses, talk about killing the golden goose!

I wonder though if this is a disinformation exercise by HM Treasury, spin the "apocalyse now" line in advance so that the real PBR looks better as a result.

The faescal stimulaaas is nothing more than a ploy buy our par lammentable buttocracy,to s it on the taxipayers at some point in the future ,when the systems con tractual scatological reverberations will be allowed to hit the fans of things can only get better .

Why not government refinance at low interest the first 5000 pounds of everybodys high interest credit cardit debt ,making them instantly solvent and chastened enough to purchace relevant items to survive the coming recession, thus stimulating the proper economy

It would only cost 100,000,000,000 pounds

Alas Labour will take us to palooooooooooooookahville and the Torys will have to make us pay for it

Can you explain how this massive borrowing the government intends to do is going to attract investors when interest rates are say are at 1%?

Surely high PSBR = high interest rates ?
Just look at Iceland - interest rates at 18%!

So Robert are you saying that the Tories are right? The planned growth in government spending for 2009, 10 & 11 has slow or even stop?

A 40bn shortfall.

That is only half the story

So up to 2011.. the tax shortfall is going to be a minimum of £120bn.

The growth in government spending can be found here.

https://www.ukpublicspending.co.uk

You can forget the GDP number, they are the stuff of fantasy.

Factoring the spending increases that were already set to grow faster than projected GDP growth for 2009-2011.

The current account deficit is going to be so much more. It's a lot, lot more..

And then factor in a massive £30bn yearly tax bribe... A bribe because it's going straight to Labour's core vote.

When you add it up. It's going to be 120+150+90 = £360bn!

THREE HUNDRED AND SIXTY BILLION POUNDS OF NEW BORROWING.

That puts us right back to Callaghan and Healey.

This is economic lunacy.

GOVERNMENT SPENDING HAS TO BE CUT.

NOT A BILLION HERE OR THERE, BUT TENS OF BILLIONS.

Tax revenues are in freefall, spending is out of control.

As for the tax hike afterwards to pay for it.

It's not just taxes that will go up. Medium term interest rates will be higher, Sterling will be lower, imports, raw materials, fuel, all priced higher than they should be.

Britannia is truly dead. No flowers please.

For the love of god Gordon, go and take your utterly useless government with you.

Lets just face facts.

A Government that didn't realise that by abolishing the 10% Income Tax band a lot of very poor people would be significantly worse off cannot be trusted to run anything at all.
Furthermore any pretence at estimating the effects on the economy, or what's left of it after 11 years of tax and spend policies, of their soon to be revealed plans just cannot have any credibility.
The Prime Minister has been a Stalinist from his University days and AD hasn't got the b*lls to tell him where to take his plans. The rest of the PLP, with a very few honourable exceptions, are as equally challenged testicularly.
Tony Blair's economic advisor from 1997 - 2003 described GB's management of the public finances as an "utter shambles". Well at least they got one thing right.

Dominance of high finance in a economy was always the road to nowhere. Stocks are shares should be invested in industry, natural resources and agriculture. Perhaps all those city folks who bought large estates in the country with their over-the-top bonuses, will now be sensible enough to put them to work... as organic farms, small business enterprise units, recycling areas... rare breeds farms, market gardening, low cost housing for local people, etc etc.
Let's put the UK back on track by replacing money grubbing with genuine enterprise.

#52 "Why is the UK perceived to be in such a poor position economically, is it just down to our pessimistic glass half empty mentality?

Fact: the UK is still the 8th largest exporter of goods and services in the world."

You have the answers in your very own statements.

1) exporter of services - predominantly *financial* services. Now that every one treats bankers and their ilk like lepers, wherefore shall the services come from ??

2) Subtract the overwhelming contributions from services and UK's export of goods look pathetic !! And just at a time when we need it most !!

On the other hand, Mercedes and BMWs, not to mention VWs are still greatly in demand worldwide. So the Germans may have more debt, but they also have more ways of paying for their debts.

I'm sure the Chinese will gladly loan the Germans large wads of cash on the understanding that they will be paid for in quality cars and bikes; not to mention high speed mag-lev systems !!

Help someone; I'm trying to explain to my 3 year old why she needs to start saving now.

She seems to have grasped the scale of the bank problem and spotted the mistakes (bless her, she's a cutie), she struggled a little with the international side of things though (not surprising as the only place she knows outside of the Yorkshire Dales is Balamory and TeleTubbie Land).

But we are now on taxation and why she is going to have to pay for the greed of our generation under Labour. I've told her it's partly because she isn't a voter yet but I'm struggling with the rest of it....

I'm putting some receipts in a time capsual that she can open when she's 21 as I know she won't believe me when I tell her VAT was only 17.5%, but does anyone know how I rephrase 'band-wagon riding, fiscally incompetent, head in the sand, vote chasing, good time Charlie' or should I just say 'Gordon Brown' and hope she looks it up on wikipedia when she's older?

Now it has come to pass that an economy can not be based on a financial hub and service industry, I hope they have come up with some ideas as to what the UK is actually going to produce going forward.

We do not have assets the world want
We do not have the finance hub to support the economy
We will not have a viable service sector, which was well on its way to being transferred to India anyway
We do not have anything.

Gordon and Darling dolls just aint gonna sell enough to get us out of this.

Amazing insight Robert - how do you get to know these things. Could it be linked to the fact that you're Brown's biographer ? Surely not a tame journalist for the Government, and a 'soft' way of leaking information ... ?

it was obvious that there fiscal policy was a total disaster and unfortunately we will all have to pay again.

they are setting it up so if they are unelected whom so ever replaces them will suffer greatly.

this looks like a long term atempt by a corrupt government to damage any replacement thus allowing them an easy return.

this alone shows this government are so self interested they have forgotten that it was joe public that voted them in and its joe public that they are messing with. its joe public that will remove them if they continue to fail.

Financial stringency surely means that we can no longer afford to maintain a bloated public sector that remains very inefficient. As public sector pay rises have been kept in line with inflation I assume it follows that public sector pay will reduce with deflationary pressures, as pay will inevitably do in the real economy. Also we must find immediate ways of removing the highly lucrative pension schemes that public employees enjoy. These payments are a massive drain on the exchequre and just cannot be sustained.

Why should my future tax rises be given to those on benefits now? I'm only an average earner but it's my money, if you want to reduce taxes then why can't I keep it and spend it myself!!

There are short term problems and long term problems.

The short term problem is that the goods and services people need are available, but people are not spending what entitlement to consume (money) they have, so the economy is grinding to a halt. Hence the fiscal stimulus.

The longer term problem is twofold. Firstly, if confidence returns, then there will be too much entitlement to consume in the system, so, to prevent inflation, taxes will have to rise to take money out of it. Keynes by the way favoured direct rather than indirect taxation to achieve this.

The second part of the long term problem is that the UK is no where near self-sufficiency, even on average. Therefore we either become much poorer relative to the rest of the world, or by manufacturing and innovation we create goods and services which the rest of the world wants. At the moment it seems highly unlikely that these services will be financial.

Also, education reforms since 1990 have significantly dumbed down maths and science education. (Of course, the government says results are better than ever.) And too many kids taking maths have seen accountancy as the peak of their aspiration.

As has been mentioned elsewhere on this page apprenticeships have also declined severely.

In conclusion, we need to do much more than tinker with our finances to ensure a long term future for the UK.

Perhaps a sort of European integration might help - we should just admit that we lost the peace and apply to become part of Germany.

Does this situation bring to mind the images of paint and corners ??

Who was it who said -

Oh, what a tangled web we weave
when first we practice to deceive !!

Every "solution" proposed by the government so far have all the hallmarks of seagull management - fly in, flap about squawking loudly, defaecate on everyone and fly out !!

#51
Of course RP is right - you seem to miss how these things work.

Mate at the treasury press office or AD himself calls to feed some morsels which HMG prefer to have people prepared for before Monday allowing some chance to fine tune following the press at the weekend or see if they can smoke Osborne out with a statement and counteract it - these are the certain things mentioned in the blog.
The background is added by RP from his research, he is a journalist after all.

VAT increase not certain means RP asked what taxes will it be VAT? and the voice on the other end did a Deep Throat (the watergate type).
Perhaps this what AD wants to see about will public accept VAT better than Income tax increase - it is also predictable that income has to left so technically Labour can say they are not increasing income tax like the Tories said.
Also the aim is to try to sell Osborne dummy and prepare a script in reply (you don;t seriously think replies in debate are off the cuff?) which is wrong in one key point. Hence you will see almost as published her but with one surprise element in Mondays speak. This is the MI5 side of party politics.

A 5% hike in VAT is a great idea.

It would help to close the gap between rich and poor whilst permitting regressive income tax to remain low.

The conservatives would be unlikely to reverse it whilst perusing a policy of low taxation and smaller government and 22.5% would bring us closer to the EU average for VAT.

After the initial inflationary shock it would drop out of the picture after the first year of implementation.

Why not go a step further and increase the scope by applying VAT to bank charges and interest, presently exempt, which would make people more responsible when taking on debt whilst being broadly neutral for business.

Lovely, VAT goes up again, and the rich are laughing, while pensioners suffer once more.

Instead of increasing VAT, just have flat rate VAT of 15% on ALL sales, with no ability for business to offset it on their purchases, made here or on imports. Then remove income tax and corporation tax, and simple, a huge increase in Govt. revenue, simpler collection and no more silly tax loopholes, also a vastly reduced number of specialist tax accountants and lawyers, and a smaller Tax collection agency.

Robert
I do not often agree with your comments as you seem to be a bit pro Nulabour at times and quite keen to promote Busted Brown 's quest for international glory but I must admit that this time you are right on the button!
It is going to be pretty bad in the near time and getting worse medium term.
Fiscal stimulus or not there is no easy way out !! I think that Brown and darling have boxed themselves for a short term political advantage but the usual taxpayers are not going to swallow their incoherent policies for much longer !

#62, you answered your own question. Brown and Darling's economic policies could see us borrow our way to 18% interest rates.

Robert

Will anyone want to stay in Airstrip One ?

First ID cards then 22.5% VAT.

You also forgot that none of us will be able to live without buying the glorious new ID card (another Tax) unless of course we wish to become non-persons.

The other tax that will rise will be the Council Tax - after all those of us with no meaningful pensions (private sector) have to subsidize the council workers.

VAT is not a bad idea. Our rate is lower than much of the EU. Plus lots of peoples bills that are going up (food, energy) are low or zero rated for VAT, so will not be affected much.

However a plain VAT increase would surely be a missed opportunity to start putting a price on carbon. We have got to do this at some stage.

Robert

I think you have missed the plane on this one. The number one priority now is get the population trained in coping with higher taxes and goods.

A major part of the statement on Monday will pivot on a major project to ensure as many as the lower and middle classes are able to take a 1 week break in Zimbabwe between March - June next year.

Called acclimatisation credits, each family will be provided with 500 quid and asked to last the week without running out of ZBN Dollars.

It will support the beleaguered air industry as well as starting a major industry in television game shows tobe exported all over the world.

Shows include;

I'm a British National, get me out of here!
Family Fortunes De-leveraged
crack-a-jock
Universally challenged
A question of support

and

Break the Budget

Robert has obviously been tipped the wink again. However, I am sure he has cunningly disguised the fact so that he only looks mostly right when it happens.

I think the minimum VAT rate under EU law is 15% [?] and that most EU states are 20%, or more. That probably gives the framework.

I therefore expect a temporary reduction of VAT to 15% then a deferred rise to 20%.

Blow cushioned, well done Robert. No probs, Al babes, glad to be of service.

When will they ever learn? borrowing to spend money you dont have on things you dont need is what got us into this mess in the first place.
the first thing to do when ones income is reduced it cut your costs....the huge increase in public workers with their unfunded gold plated pensions has to stop, the biggest waster of money is the public sector, tighten up all controls, get rid of 300 MP's, for a start, why do we need so many? only politicians trying to hang on to their sinecures would advocate this mad spending spree. there are more savers than borrowers so cutting the rate has a negative effect...Put up interest rates to 12% and watch the money flow back into the economy...

I think that the Labour's Mouthpiece (aka Peston's Blog) has been used for that ages old tactic of breaking the bad news before it is officially released - let the people get used to it, then there is less fuss when announced.

Still, I like the idea of a 22.5% VAT rate.

It will make the French happy - they have wanted the UK to come more into line with their rates (and, therefore, less able to compete with them) for ages. Should assure Brown of a senior role in Europe once his place in the UK becomes untenable (i.e. after 2010).

It will also kill off what is left of the UK manufacturing industry by making it even less able to compete with Chinese imports.

Finally, it will provide a further impetus for the 'black economy' - those enterprising plumbers, electricians and builders who work cash-in-hand will make a fortune and, given that the income cannot be declared, will hit the Treasury even harder.

Clever old Clown McBrown and his Puppet Chancellor have done themselves proud with this bit of thinking. It must have taken whole minutes of concentration for them to come up with this wheeze.

Ha ha

EU warns against car subsidy race - BBC headline

Now GM is sticking out the begging bowl to the Germans and the EU will allow subsidies for R&D *only* and *NOT* any other purpose.

GM subsidiaries Opel and Vauxhall may soon be sold to fund the US car unions !! They have already sold their stake in Suzuki.

Why do I get the feeling that the EU and some EU nations are in a "pikes out" position, ready to repel importuning invaders ??

Economic Darwinism will come to the fore and the weak and feeble-minded will fall by the wayside !!

BTW, in the photo of Darling, do I spy bags under his eyes ?? Has he not been sleeping well lately ?? Is he wondering who *else* he can contact to borrow loadsadosh from to fund the spend, spend, spend to get out of the recession ??

71 Bishoplatimer:

Absolutely right. We need to consider the private/public balance because it is ultimately the former that pays for the latter.

If we shield public sector employees from the impact of recession, the entire burden will fall on private sector employees and employers. The danger here is that the burden will just be too great.

One very worrying thing is that none of the political parties has recognised the need to cut public sector spending - even the Conservatives are talking about slower growth, not outright retrenchment. The pensions issue in particular needs to be addressed, but I see little or no chance of any political party actually having the courage to tackle this.

Small giveaway now , large giveaway in April, Election end May or early June with promises of more giveaway and threats of huge tax hikes if the Tories win. Typical Labour agenda. Giveaways aimed supposedly at the poor, and lower paid, or to put it another way, at the workshy who Brown hopes will give him a 4 million guaranteed vote to keep his abomination of a government in power.

Love these blogs. Such an incite into how people think and most importantly their inability to read. It certainly explains how the press can con folks with distortions and why spin (by politicians and the press) is sooooooo important. It clearly works.

Rule1: Read RP's blogs carefully before replying. That would at least prevent weird and wonderful but totally incorrect conclusions.
Rule2: Read a history book, especially ones that go back beyond the point of the current economic theory (at least 1 change of government)which would mean going back to 1979. It normally requires a catastrophe before significant changes are implemented by any party.
Rule3: Try and prevent your "incite" being driven by hindsight. So many post event experts out there!

I have an interest on "alternate" subjects and it is quite astonishing how comparable folks distorted views are. Spookily so.

Oh dear! Does the Chancellor understand the difference between regressive and progressive taxes? If it is prudent to stimulate spending, raise income tax allowances, and increase new higher rates for the really rich (like bankers!). Tax bonuses at 100%

A rise in VAT would hurt the poorest most, still maybe that's what Labour want - give them benefits on the one hand and take them away on the other.

Meanwhile spend a fortune on public sector executives pay.

Vat rises,will be used to stabilize prices in the coming maaassive deflation and the hint of it through one day to be Sir Robert Preston will encourage people to spend more of what they have not,now .

Soon the price of goods like the price of petrol will contain a massive taxi element,
thus ensuring that our MPerrors can purchase anew each day ,the latest transparrent fasion statement accessories provided by their slip streaming tailerrs so that we wont know weather to laugh or cry at their brazen balls flashed accross the nations media .....before they aaare publicly castigated for not being able to cover up the cover up covering the cover up with the latest economy of the truth.

Please read post 213. sashaclarkson on the previous article and the response before it is removed. I cant stop laughing. That has got to be the funniest political joke of the current time.

Pulling myself together again

In response to RP and his predictions, VAT needs to be increased to a level that allows basic taxes to be reduced significantly enough to let people pay the bills and create an element of '' in built debt'' on purchases. 22.5% is not sufficient to do this.

Evening All.

So its the pre budget speech DRIP DRIP.


This will be the TOXIC waste along with all

the other stuff to poison the next

Administration.

Classic tactics per OLD Labour from the 60's

& 70's.

BROWN/DARLING ?

Cut out the MIDDLE MAN.

Call the ELECTION.

Must say the PICTURE of Darling is a DREAM.

Desperate or WHAT?

#67 You may do all that but will you also consider the following:-

1) will she have a machine to look up wikipedia ??

and

2) will she have the energy to run that machine, if she has one ??

Perhaps you could teach her some useful skills to better prepare her for a life in the future. Skills like self-defence, knife fighting and basic cookery skills like how to kill, dress and roast an animal larger than she is !! After all, there's no telling who she may meet going down the street !!

A few handy skills like bartering with passing ships for items not available locally may not be amiss. Also a healthy dose of paranoia could be life-prolonging.

Hope this helps !!

#89 "Giveaways aimed supposedly at the poor, and lower paid, or to put it another way, at the workshy"

Does the description "workshy" include those who work 12 hour shifts, for the minimum wage, in old peoples' homes cleaning up the incontinent and holding the hands of the dying? (As some of my friends do) Or those who, when most of us are still in bed, are already up collecting our rubbish?

The really poor often don't bother to vote anyway.

#76 meet #77 !!

"Which is why the chancellor will have to announce that taxes are going to rise at a specified date in the future, to fill the structural hole in the public finances."

Have to?

What do you mean "have to"?

Are you suggesting that it's completely impossible for the budget surpluses of the future to be generated by spending reductions rather than by tax increases?

What is behind this presupposition that public spending is something that cannot be ratcheted downwards? Is it economic? Is it financial?

Or is it just something that no Labour supporter can possibly utter - the very idea that it could be better making do with a State sector that is smaller than the absolute maximum size that it's possible for it to be?