Saturday, 2 January 2010

Ken: Dave could have to raise taxes

Shadown business secretary Ken Clarke had admitted that the Conservatives may have to raise taxes if they win the general election. He did not rule out an increase in VAT. He also said that Dave Cameron was having 'a struggle' to get his message across: Ken

From one point of view this is welcome honesty about what is needed to balance the country's book.s Without tax rises it would be difficult to start to deal with the deficit without cuts in public services that would be unacceptable to many voters. However, it does give some potential ammunition to Labour as VAT is a regressive tax.

In terms of Dave's message, which he started rolling out with a speech to his party workers in his constituency yesterday, the polling evidence would seem to suggest that voters are fed up with Gordon Brown and Labour, but do not yet feel confident about Dave and the Conservatives. Indeed, in some respects the Conservatives have been falling back, although the upcoming series of launches may help them to seize the agenda.

Conservative workers in key marginals seem to be quietly confident without being in any way complacent. It is in these seats that the election will be decided.


Justin Greaves said...

Has there been much academic research into the extent to which VAT is genuinely regressive? EG: many items which the poor need to buy - eg: food - are VAT exempt.

If we assume, however, that VAT is moderately regessive is not the solution to use a proportion of the revenue gained to increase out-of-work benefits by slightly above inflation and the personal allowance for those in work?

I think Sweden and Norway (?) have VAT rates of about 25%. This may not be politically feasible but a truly radical policy would be to raise VAT to such a level, phased over two to three years, with the revenue shared between reducing the deficit, lowering taxes on jobs (NI), and reducing other taxes/ increasing benefits on the poor.

Wyn Grant said...

I'm sure there is such work. For example, adult clothing is subject to VAT. Many of the relatively poor still need cars to get to work, particularly if they work unsociable hours. There is an upper limit on VAT within the EU and really there should not be large variations in an internal market, but that's another story. If you start increasing benefits to the poor, you risk making the benefits trap even worse. Of course, what has been happening is that income tax has in effect been increasing because NI contributions by employees (as well as employers) have been going up: the only difference from income tax is that you stop paying NI once you reach retirement age.