Budget

[Filo]

More Tory Lies


Cameron, \"we have no plans to put up VAT

[bobjimwilly]

Unbelievable! Surely that is proof that the Torys are liars, plain and simple?
Oh wait, let me guess, they'll say it's because the economy was worse than they thought? Get out clause 101.  :S

[Filo]

bobjimwilly wrote:

Unbelievable! Surely that is proof that the Torys are liars, plain and simple?
Oh wait, let me guess, they'll say it's because the economy was worse than they thought? Get out clause 101.  :S

You see, thats what all the Tory voters were banging on about, how Labour had lied to them and yet just a month later the Tories are dishonest them selves, the Tories were shouting from the rooftops about honesty and transparency and how they were going to change it, yeah right!

[River Don]

BillyStubbsTears wrote:

Savvy wrote:

Rigoglioso wrote:

Labour never properly ended boom and bust though. The country was growing but it was living beyond its economic means. The recession and the problems that came along were the size of the biggest atomic bomb imaginable that nobody could have envisaged. However, Labour were guilty of \"boom and bust\". To think otherwise is naive.

As regards Iraq, it's irrelevant what the Tories would have done because they weren't in power. Labour, however, were in power. And to declare a war to get \"weapons of mass destruction\" which never existed anyway, is absolutely scandalous. Tony Blair declared the war on Iraq to get pally with America and to get the oil. And what about the David Kelly saga that followed? Was it a cover up? Either way how can you trust a government that goes ahead with this.

What do you actually mean? Boom and bust is a term used to describe a cyclical economy which was exactly what Labour were trying to come away from.

No they weren't. That's an impossibility. Economies will ALWAYS be cyclical. What Labour  did superbly well for a decade was to smooth out the cycles.

Compare and contrast with what Nigel Lawson did in 1988. At the height of an economic upswing, he slashed income tax, effectively throwing petrol on a fire. The result was that inflation exploded, interest rates went up to 15% to compensate and the economy collapsed. THAT is boom and bust. To be fair, both Labour and the Tories had been guilty if that sort of economic mistake for decades. What Brown meant when he spoke about boom and bust was that he wouldn't make that mistake. And he delivered on that promise. It's intellectual bone idleness to trot out a soundbite and not think about the context, but that us what everyone does now when they make jibes about that boom and bust quote.

My huge worry now is that the Tories are implementing policies that you would normally use to dampen down an economy after a classic inflation-led boom and bust cycle. But we haven't had that problem to deal with. We have a FAR more dangerous problem, which is the threat of DEFLATION. The answer to that is to encourage growth, even at the cost of increasing Governent debt. If Osbourne has mis judged the root of our current economic problem then this massively deflationary budget will be judged by history to be a catastrophe. And there's a precedent. The Government response to the last deflationary recession we had turned the 1929 recession into the 1930s Depression.

From all that I've read no-one seems to know whether it's INFLATION or DEFLATION we ought to be worried about, the press publish the opinions of renowned economists and it seems there is a 50/50 split on this one.

At the moment though, prices are rising, particularly fuel prices and every month inflation figures are unexpectedly higher... I'm not so sure deflation is the threat we face.

[BillyStubbsTears]

bobjimwilly wrote:

Unbelievable! Surely that is proof that the Torys are liars, plain and simple?
Oh wait, let me guess, they'll say it's because the economy was worse than they thought? Get out clause 101.  :S

Which is actually incorrect of course, as the latest figures from April show that the deficit is actually significantly lower than Darling had said before the Election.

Mind, the Tories have previous. In 1979, before the Election, Thatcher insisted that the Tories would not double VAT. They didn't. They only put it up from 8% to 15% a month aftercwinning power.

VAT is the Tories' tax of choice, precisely because it disproportionately hits the poor. The poorest spend pretty much every penny they earn and therefore pay a huge  proportion of their total income on VAT. The rich, by contrast, have large surpluses of money after seeing to their basic living costs. In many cases thus is invested in things that you don't pay VAT on. Like property, shares, bank savings, private school fees, gifts to their kids to get them through University. etc. So the rich pay a far lower proportion of their income in VAT.

This us why Labour never puts up VAT. And it's why the Tories do so on a regular basis. In the last 31 years, VAT has gone from 8% to 20%. Every single rise has occurred under a Tory Government. Not once did their manifesto say that they would do this.

So yesterday was just reverting to type.

[MrFrost]

I just hope they stop giving out free suits at the job centre.

[River Don]

BillyStubbsTears wrote:

bobjimwilly wrote:

Unbelievable! Surely that is proof that the Torys are liars, plain and simple?
Oh wait, let me guess, they'll say it's because the economy was worse than they thought? Get out clause 101.  :S

Which is actually incorrect of course, as the latest figures from April show that the deficit is actually significantly lower than Darling had said before the Election.

Mind, the Tories have previous. In 1979, before the Election, Thatcher insisted that the Tories would not double VAT. They didn't. They only put it up from 8% to 15% a month aftercwinning power.

VAT is the Tories' tax of choice, precisely because it disproportionately hits the poor. The poorest spend pretty much every penny they earn and therefore pay a huge  proportion of their total income on VAT. The rich, by contrast, have large surpluses of money after seeing to their basic living costs. In many cases thus is invested in things that you don't pay VAT on. Like property, shares, bank savings, private school fees, gifts to their kids to get them through University. etc. So the rich pay a far lower proportion of their income in VAT.

This us why Labour never puts up VAT. And it's why the Tories do so on a regular basis. In the last 31 years, VAT has gone from 8% to 20%. Every single rise has occurred under a Tory Government. Not once did their manifesto say that they would do this.

So yesterday was just reverting to type.

True enough, the tories love to raise VAT they never touch income tax.

Won't cutting public spending ravage the economy?

The debate is irrelevant, it assumes that the country has any choice in the matter. We now have to cut back whether we like it or not. Other economies such as Greece and Portugal and even Germany now are trimming their deficits. If Britain doesn't follow suit, it'll be targeted by investors worrying about sovereign debt crises.

[jucyberry]

Well, in tory thought I guess a tax that hits the poorest sector of the country is grand. Afterall, how very dare poor people want nice things? Let them eat dust.
As it is many on a low income don't hanker for luxury goods, they are too busy trying to pay the bills and get enough to eat to worry about anything frivolous. I'm more concerned about the effect of  any vat rise on everyday living than things I have no need for.

[MrFrost]

All this effecting the poor b*llocks is just an excuse. The VAT increase will hit everyone. On the other hand, 880,000 extra people won't be paying any income tax. Good news for low earners.
As a business owner, i'm pleased of the cooperation tax cuts.
I'm not worried about the VAT increases at all.

[Filo]

MrFrost wrote:

All this effecting the poor b*llocks is just an excuse. The VAT increase will hit everyone. On the other hand, 880,000 extra people won't be paying any income tax. Good news for low earners.
As a business owner, i'm pleased of the cooperation tax cuts.
I'm not worried about the VAT increases at all.

Man on £100k disposable income per year buys a TV at £500 pays another £100 in VAT

Man on £15k disposable income per year buys a TV at £500 pays another £100 in VAT



How is that fair? the man on the smaller disposable income is hit harder than the wealthier man!

[MrFrost]

Another £100 in VAT? How do you work that out. Vat has increased by 2.5%. Thats an extra £12.50.

Edit - I actually see what you mean now, however the overal price on that TV would increase by £12.50 so its hardly a massive increase in the bigger scheme of things. Simply buy a slightly cheaper TV.

[BillyStubbsTears]

River Don wrote:

BillyStubbsTears wrote:

bobjimwilly wrote:

Unbelievable! Surely that is proof that the Torys are liars, plain and simple?
Oh wait, let me guess, they'll say it's because the economy was worse than they thought? Get out clause 101.  :S

Which is actually incorrect of course, as the latest figures from April show that the deficit is actually significantly lower than Darling had said before the Election.

Mind, the Tories have previous. In 1979, before the Election, Thatcher insisted that the Tories would not double VAT. They didn't. They only put it up from 8% to 15% a month aftercwinning power.

VAT is the Tories' tax of choice, precisely because it disproportionately hits the poor. The poorest spend pretty much every penny they earn and therefore pay a huge  proportion of their total income on VAT. The rich, by contrast, have large surpluses of money after seeing to their basic living costs. In many cases thus is invested in things that you don't pay VAT on. Like property, shares, bank savings, private school fees, gifts to their kids to get them through University. etc. So the rich pay a far lower proportion of their income in VAT.

This us why Labour never puts up VAT. And it's why the Tories do so on a regular basis. In the last 31 years, VAT has gone from 8% to 20%. Every single rise has occurred under a Tory Government. Not once did their manifesto say that they would do this.

So yesterday was just reverting to type.

True enough, the tories love to raise VAT they never touch income tax.

Won't cutting public spending ravage the economy?

The debate is irrelevant, it assumes that the country has any choice in the matter. We now have to cut back whether we like it or not. Other economies such as Greece and Portugal and even Germany now are trimming their deficits. If Britain doesn't follow suit, it'll be targeted by investors worrying about sovereign debt crises.

I'm not questioning the need to trim the deficit. Of course we have to do. Labour were already planning that with a very big reduction planned for the next 5 years. But this budget is not trimming the budget, it is slashing it.

It's a question of degree. You can reduce the deficit as a proportion of GDP by:

a) redcuing the absolute value of the deficit by a moderate amount and trying to grow GDP quickly (so the deficit as a PROPORTION of GDP falls, which is the important issue).
or
b) reducing the value of the deficit very quickly and accepting that GDP won't grow as quickly.

Neither approach is risk-free. The first requires relatively high Govt spending to keep boosting the economy. That risks spooking the markets and also possibly increasing inflation in the long run. The second requires big increases in unemployment, poorer public services and higher levels of poverty (with the usual crime increases that go with it (last time a Tory Govt took this approach, we had economic devastation in our region and riots on the streets of every major city).

For me, the risks arfe bigger on the second approach. The Greece issue is a bogeyman raised by the Tories to justify them doing what they always wanted to do for ideological reasons. It is utter b*llocks, lies of the worst kind to compare our situation to that of Greece. We have a) a lower current deficit and b) a far, far lower total debt. We could continue with the current deficit for a decade (and no-one is remotely saying that we should) and still have a lower debt-to-GDP ratio than Greece. Greece has been put forward by the Tories, the Press and right-wing economists as a smokescreen to justify the brutal attack on public services that is now underway.

Interestingly, the last Tory Govt, with Ken Clarke as Chancellor took plan A as we came out of the 90-92 recession and was spectacularly successful, despite having a huge deficit to deal with at the time. The deficit problem went away because the economy grew steadily and confidently throughout the mid to late 90s. This bunch, by contrast, have rejected that approach and gone for the uber-Thatcherite way forward. And we're all going to have to live with it.

[Mike_F]

I think the budget was vaery fair overall.

The main issues for me are:

- 3 year Public sector pay freeze for those earning £21k plus. Something had to be done about the public sector gravy train with  report published this week showing that in like for like jobs e.g. admin, cleaning etc where direct comparisons can be made public sector workers are better paid than those in the private sctor. Add to this better pensions, more holidays, flexitime etc and the whole thing snowballs. This change doesn't hit the lowest earners and they will be the ones benefitting most from the raise in the PAYE threshold. Despite an extra 2.5% VAT they shouldn't suffer as they will have more money in their pockets.

- VAT increase from January. This is a bit of an issue for my industry (grocery) with many products being price-marked etc. If the product is unchanged, either the brand owner or the retailer must take a 2.5% hit on margin. No buyer is going to accept this so it has to be the suppliers who feel the pinch. You'll see a lot of price-marked products reducing in size to attain the same retails due to this. Interesting to see that no items currently VAT exempt were added to the tax system, so you can still buy a luxury yacht without paying a penny of VAT. I would've put a 25% \"Super Tax\" on this sort of extravagant purchase. I don't know how much is spent on yachts annually but let's say an averagwe price of £1m per boat, just 400 bots in a year would raise an extra £100m.

- Cap on housing benefit. Good heradline-grabber but I can't see it raising/saving much in thegrand scheme of things. I know not everybody on benefits is a scrounger but I've been out of work and wasn't entitled to any help with mortgage payments etc. It seems that those who put into the system are the ones least entitled to get anything out when they need it! I would have gone further and introduced community jobs for those on the dole e.g. litter-picking, graffiti cleaning etc. Make 'em earn the money we're giving them. As I said I've been out of work and wouldn't have minded doing this as the whole society benefits form cleaner and more pleasant surroundings.

- Child benefit not to be means tested and frozen for 3 years. I was worried about child benefit being means tested or axed as I've got my first sprog on the way and no doubt the means testing would exclude us from eligibility as it would be done on income without looking at outgoings. By the time we've paid our mortgage and bills (including repayments on debts that I foolishly ran up in my early twenties and have struggled for years to pay back - nobody's fault but my own!) we have very litte left over. In fact we have less disposable income than many people on benefits! OK a 3 year freeze is a real terms reduction due to inflation but it's negligible and necessary.

[River Don]

BillyStubbsTears wrote:

River Don wrote:

BillyStubbsTears wrote:

bobjimwilly wrote:

Unbelievable! Surely that is proof that the Torys are liars, plain and simple?
Oh wait, let me guess, they'll say it's because the economy was worse than they thought? Get out clause 101.  :S

Which is actually incorrect of course, as the latest figures from April show that the deficit is actually significantly lower than Darling had said before the Election.

Mind, the Tories have previous. In 1979, before the Election, Thatcher insisted that the Tories would not double VAT. They didn't. They only put it up from 8% to 15% a month aftercwinning power.

VAT is the Tories' tax of choice, precisely because it disproportionately hits the poor. The poorest spend pretty much every penny they earn and therefore pay a huge  proportion of their total income on VAT. The rich, by contrast, have large surpluses of money after seeing to their basic living costs. In many cases thus is invested in things that you don't pay VAT on. Like property, shares, bank savings, private school fees, gifts to their kids to get them through University. etc. So the rich pay a far lower proportion of their income in VAT.

This us why Labour never puts up VAT. And it's why the Tories do so on a regular basis. In the last 31 years, VAT has gone from 8% to 20%. Every single rise has occurred under a Tory Government. Not once did their manifesto say that they would do this.

So yesterday was just reverting to type.

True enough, the tories love to raise VAT they never touch income tax.

Won't cutting public spending ravage the economy?

The debate is irrelevant, it assumes that the country has any choice in the matter. We now have to cut back whether we like it or not. Other economies such as Greece and Portugal and even Germany now are trimming their deficits. If Britain doesn't follow suit, it'll be targeted by investors worrying about sovereign debt crises.

I'm not questioning the need to trim the deficit. Of course we have to do. Labour were already planning that with a very big reduction planned for the next 5 years. But this budget is not trimming the budget, it is slashing it.

It's a question of degree. You can reduce the deficit as a proportion of GDP by:

a) redcuing the absolute value of the deficit by a moderate amount and trying to grow GDP quickly (so the deficit as a PROPORTION of GDP falls, which is the important issue).
or
b) reducing the value of the deficit very quickly and accepting that GDP won't grow as quickly.

If you believe the Office for Budget Responsibility the short-term outlook for is better than expected. But the long-term outlook is worse than the Labour Government forecast. Our debts are still staggeringly high. Overall borrowing is going to be lower over the coming five years than forecast because tax receipts look like they'll be healthier than expected.

The bad news is the structural deficit is worse than expected.

The structural deficit is any overspend that remains even when the economy is running at its normal growth rate. Even when tax receipts recover, and unemployment falls, we're still forecast to be overspending. That's unsustainable, hence the need for cuts.

Whether these tax hikes will hinder private sector growth is another matter...

I agree it is a question of degree.

[BillyStubbsTears]

I think the biggest problem here is that we simply have not had a recession of this sort since my granddad was a bairn, and the economic prediction models (flaky at the best of times) have to be viewed with some skepticism. The OBR predicitons of GDP growth do seem to be very rosy in the light of the massive reduction in Govt spending announced yesterday. Despite cutting an additional £40bn of Govt spending out of the economy, the OBR prediction is that this will only reduce GDP growth from 2.6% (which was what it was forecasting last week) to 2.3% (taking into account the Budget effects) in 2011. That seems to be implicitly assuming that the private sector recovery will take up pretty much all the slack. Which is a huge assumption - and one which flies in the face of the Japanese experience in the 1990s, where private sector confidence collapsed as the Govt cut back its own expenditure.

It seems that Osbourne is taking a colossal gamble on the strength of the private sector. Let's hope he's right, eh, or we're in for some interesting times.

[River Don]

One side reckons spending cuts will be a disaster and plunge us into depression. The other reckons that by keeping interest rates low, and allowing the private sector to flourish, we'll end up with a much healthier economy.

As ever it comes down to whether or not you believe in government or the market. I feel the answer is balanced somewhere in the centre which is why I'm all for PR these days. I don't believe in the dogma of either extreme.

One thing is for sure, we'll never know who's right. In 50 years' time, whatever happens, economists will still be arguing the merits of their own pet theories.

[Jonathan]

Mike_F wrote:

3 year Public sector pay freeze for those earning £21k plus. Something had to be done about the public sector gravy train with  report published this week showing that in like for like jobs e.g. admin, cleaning etc where direct comparisons can be made public sector workers are better paid than those in the private sctor. Add to this better pensions, more holidays, flexitime etc and the whole thing snowballs.

Strange terminology to use there mate. You surely are not suggesting that an admin person earning for example £12-18k a year in the public sector is on some kind of gravy train? I do not think the cleaning contracts are providing any kind of unreasonable remuneration either. If you look at the business leaders you will likely find that those in the private sector are earning many many times more than those in the public sector, it depends which statistics you wish to manipulate to illustrate a 'gravy train.'

As somebody that will be affected by it, the pay freeze is a more than acceptable measure in my opinion and I have no problem with its' fairness, but I think you should take a more balanced view than to speak of the public sector in the terms you have.

As for flexible working, surely that is a sensible approach to increasing productivity that allows people to respond to circumstances and peaks and troughs in the work load without being constrained by rigidity.

Of course there is a different cultural approach in the service-led sector and this will always be belittled by the ignorant Tory press, but that does not make public service any less important.

[BillyStubbsTears]

River Don wrote:

One thing is for sure, we'll never know who's right. In 50 years' time, whatever happens, economists will still be arguing the merits of their own pet theories.

I'm not sure I agree with you there. If there was one thing to come out of the disaster of the 1930s, it was the general agreement that the economic decisions made in the teeth of the 1929-31 recession were utterly wrong and turned recession into the Great Depression. Buttressed by John Maynard Keynes's theoretical critique, the whole capitalist world changed its approach leading to 30-40 years of relatively calm global economic performance (at least stable compared to what went before and what came after in the 80s and early 90s when Thatcher and Reagan threw the Keynesian rulebook out and we were pitched into two horrific recessions).

Fingers crossed that we don't need a 2020 version of Keynes to explain to us in a decade why the 1930s-style decisions made in 2010 were so catastrophically wrong...

EDIT: And as I write, Will Hutton is saying pretty much exactly the same thing on BBC1.

[The Red Baron]

BillyStubbsTears wrote:

It seems that Osbourne is taking a colossal gamble on the strength of the private sector. Let's hope he's right, eh, or we're in for some interesting times.

That's the bit that bothers me- and the reason why I would not have raised taxes (including VAT) substantially at this point. There is a definite need to rebalance the economy from consumption to production (a better distinction than public to private, although it amounts to much the same now there are no significant state-run industries.)

I suspect in his heart of hearts that Osborne might have preferred to cut deeper and tax less- and might have done just that if the Tories had enjoyed a healthy majority on their own.

As for the Greece/ Spain situation there is one point you have all missed. The \"Club Med\" economies are all members of the single currency. The UK is not, and therefore we have the option of devaluation- something we have taken over the past couple of years. Had we joined the euro, our position would be little different to them. Perhaps we have something to be grateful to Gordon Brown for!