at present, for the person with whom the buck stops, it sure must be pretty scary to be so challenged.

at present, it surely must be pretty scary to be so challenged.

If this recession has not ended by the time a high speed rail line London to Manchester has even been started, things will have gone very, very badly. And the next election will have been and gone.

If the government wants to spend money to stimulate spending, as I gather is the idea, what could possibly be quicker or better targetted than a VAT reduction? You can call it a spending subsidy, if you like.

It should also be remembered that the point was not just to pass the benefit to consumers. The Treasury were quite content for retailers to not pass the cut on and to protect their margins.

What does throw it into doubt is is the scale of the discounting. If a sale price is cut by 70% then the VAT take will be reduced far more by the price and margin cut than by the rate cut. It will be interesting to see the December VAT figures and to see how much of a fall is rate based and how much activity/margin based.

As for whether it was a good use of £12bn there are two questions, the measure and its timing. The measure has been discussed, its timing has not. As a country we have spent £12bn and its not there. Other countries still have their 12bn to spend and perhaps think its effect is better spent accelerating out of the curve rather than braking into the curve. (I have no view.)

I agree. Unfortunately the number of projects you could throw £12bn at in December and have men with shovels going in in, say, January is fairly small, outside London at least (and even here the most obvious project is being held up by Boris arguing with the DfT). It takes years to work projects up to the stage where they’re ready to go, and unfortunately most of the projects in this state which were merely waiting funding were roads projects, which therefore got the lions share of the cash. Very welcome for petrolheads, and of course it does create/retain employment, but its not really sustainable investment.

What we need are sustainable projects where you are literally just waiting for the money. Here’s one idea – I had the notion a few days ago to find every preserved railway that’s scraping together the money to expand, and giving them cash to build the extension ASAP, perhaps in return for running more frequent public services. This will employ a few people in the construction industry, not be a waste of money and go some way to helping the tourism industry.

Another other option is to find house building projects which are in financial trouble, nationalise them, complete them and use them as social housing, which kills two birds with one stone.

(As Lee basically says…)

If you could come back with figures that take that situation in to account I’d be more agreeable about how the VAT cut has worked.

More importantly at the moment, many shops are in a massive price war with their competitors anyway so the cut pales into comparison next to the sales – which started just before the VAT cut was announced so it’s almost impossible to unpick.

At the moment, for example, all the shoe shops in cambridge (where I live) have huge “70% off” signs up – what effect the 2.5% reducing on the rate of VAT has had in that context I’m not sure it’s actually possible to tell.

I agree it must have had a small effect , if I blow and the Atlantic it has a small effect , it must do . So nothing . It was the right idea but we were already over borrowed and could not prusue a tax citting policy. Personally I think VAT was mostly a public relations driven initiative allowing Brown to ditch his rules and call it Keynesian which works for those with no sense of proportion ( Oh how I have laughed at the American parallels yanked out of context) .

The best taxes to drop would be Nat Insurance and income tax as they are taxes on employment as well as removing money from the economy into the dead wood state . This must also be done sustainable which requires cutting government expenditure .
The Party that goes to the electorate with the lowest tax promise will win and that cannot be New Labour .The Conservative problem is not winning it is winning without having made politically impossible promises. The leaves a gap for the ever opportunist carrion feeding Liberals to invent tax cuts but that is a risk a responsible government will have to take .

Incidentally while I discuss the fracturing New Labour settlement it was rather interesting to see that thre wild cat nationalist strikes were organized via the internet . If the Nationalist and conservative working class vote escape the hierarchy of the left then it truly is the end of the left intelligentsia for whom they have paid

PS Sunny see you got a Protectionist elected . Nice work Told you , they next thing I told you was that America was going isolationist under a duvet of multilateral sanctimonious hum bug…. I am always right

Agree with Jim Jay’s last point.

Firstly it’s whether – if the VAT cut does significantly effect levels of spending – the aim is worthwhile. Does it improve the sustainability of the economy to encourage consumer spending?

Secondly – the VAT is being paid for from a mixture of increased borrowing (is this a good thing?), “economies” (government employees being laid off), which does not help stabilise the employment figures – which may well be a lot more important than personal spending levels, and lastly and most importantly in 2010 we will have an increase in National Insurance contributions – which adversely impacts on the lower half of the income scale.

To my mind if we were going to spend over ten billion pounds on an economic measure this one seems particularly weak. If we were going to spend this money (and personally I believe we’re paying for it in entirely the wrong way) I suspect it would be more important to focus on jobs and the base of the economy rather than deducting 5 pence from a Starbucks Venti Mocha.