Wednesday, May 26, 2010

BLOG 88

MY BUDGET ADVICE TO GEORGE OSBORNE


George Osborne is going to give his emergency Budget on 22 June. Prior to the election he said that a Conservative government would use the Pre-Budget report to expose for comment the vast majority of its tax legislation. I hope that pledge has not got lost in the negotiations for the coalition.

Accordingly my Budget advice to George Osborne is –

1. Increase VAT as that is the one thing that can easily be done during the course of a fiscal year, and

2. Leave all the other changes that you would like to make for the Pre-Budget report in November.

Why increase VAT? An increase to 20% will raise £11 billion a year or £55 billion – roughly a third of the deficit – over the five-year life of the parliament. VAT does not hit the very poor. Two of the three generally accepted essentials of life – food and accommodation – are both exempt from VAT and the third, heating, is taxed at a 5% reduced rate so will not be affected by an increase in the standard rate. Clothing (except for children) is VATable and so are some of the expenses that the poor need to incur. However to forgo £55 billion because a tiny fraction of it will be paid by the poorest members of society is akin to throwing the baby out with the bathwater. It is far more sensible to collect the £55 billion and increase social security to compensate for the extra cost that it will impose on the poor.


ROBERT MAAS

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