Date published: 2008/11/24
The BBC says:
Chancellor Alistair Darling has cut VAT but taken borrowing to record levels in moves he says are needed to save the UK from a deep and long-lasting recession.
Top earners also face more tax and all National Insurance contributions will rise, he said in his pre-Budget report.
Alcohol, tobacco and petrol duty rises to offset the 17.5% to 15% VAT cut.
Mr Darling said "exceptional measures" were needed with the economy set to shrink next year - but the Tories said he had "mortgaged" Britain's future.
Shadow chancellor George Osborne, for the Conservatives, accused Mr Darling of "bringing this country to the verge of bankruptcy" by doubling the national debt, which is set to reach £118bn next year.
For once the Tories are correct. This is a staggering amount of debt. The debt to GDP ratio will increase from around 40% to around 60%. And the country will have very little to show for it, because the government is not increasing spending.
The main changes from the previous budget are as follows, summed over the four financial years 2008-2012. All figures are in billions of pounds, with negative numbers meaning the the government financial position is worse.
What is most important is that those changes are all to do with taxation, and nothing to do with spending. They have moved 3.8 billion pounds of spending from 2010-2011 to 2008-2010. But that is it. One consequence is that the next (most likely Tory) government is being asked to cut spending (possibly in its first year) even before it takes office.
Obviously the VAT change is the big gamble. First of all, many companies might not pass the savings onto their customers. Well, it means that companies would be more profitable, which is not necessarily a bad thing. But even if the savings are passed on, it's not clear that consumers will spend any of this money (or that from the tax changes) rather than just saving it. The real problem is that the UK (consumers, as well as the government) has too much debt, and consumers wisely might decide to try and reduce their debt a bit, rather than partake in more spending. Especially given that the threat of unemployment is there for everyone and anyone (except for the usual legion of jobs-for-life-no-matter-how-useless civil servants).
And the income tax and national insurance changes shown above mask a redistribution from the rich to the poor. So the government thinks it can soak the rich (so anyone who earns over 100k) to the tune of an extra 2.8 billion pounds over the four years. It will be interesting to see how that pans out. People who earn that much have accountants, and accountants are good at minimising tax.
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