George Osborne’s avoidable VAT rise

Green Politics

George Osborne repeatedly said that this was the "unavoidable Budget". But the rise in VAT was only necessary to pay for a series of tax cuts elsewhere.

In his Budget speech, George Osborne repeatedly said that this was the “unavoidable Budget”. Even within his self-imposed framework of £1 of net tax rises for every £4 of spending cuts – which flies in the face of all international comparisons – the VAT rise was only necessary to pay for a series of tax cuts elsewhere.

The regressive increase of VAT from 17.5 per cent to 20 per cent raises £13.5 billion by 2014-15. But cuts to income tax, national insurance, corporation tax, and council tax cost £12.4 billion. Once all the changes are taken into consideration, tax changes contribute only £8.2 billion to the fiscal consolidation.

By contrast, the reduction in total managed expenditure comes in at £31.9 billion with £20.9 billion coming from departments and £11.0 billion coming from changes to benefits such as the freeze on child benefit. Indeed, effective cuts to child benefit, the child tax credit, and child trust funds – which together cost £2.5 billion – could have been avoided if the Chancellor had not announced cuts to corporation tax.

George Osborne’s VAT rise was “avoidable”. The reason it has taken place is it pay for the Lib-Con’s ideological tax cuts, which fly in the face of fiscal responsibility.

UPDATE 17.44:

For somewhat different reasons, Conservative Home have come to the same conclusion about VAT. Tim Montgomerie’s piece also includes this line from David Cameron in an interview with Sky on April 1st: “Our plans don’t involve an increase in VAT”.

Labour List have a separate transcript of David Cameron saying the same thing after the election in mid-May. Next Left call this Conservative move, “the legendary Geoffrey Howe dodge on VAT”.

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