Prime Minister: cut income tax, not VAT

Gordon Brown continues to make decisions that will deepen/lengthen this recession.

He is now planning on cutting VAT from 17.5% to 15%. Bad move. VAT is one of the best taxes in a Governments armoury. It is cheap to collect, it raises a massive amount of money and it discourages consumption by making prices higher.

Cutting VAT will reduce prices for most goods in the UK will by around 2.1%. Is that going to make you go out and spend more? I didn't think so. But what it will do is increase government debt by another £12.5 billion per year.

Government debt eventually has to be repaid by the taxpayer, so the Labour government is effectively lumping another slug of debt on our shoulders that we must pay back in the years to come (either through higher taxation or fewer public services).

I would prefer to see the government raise funding / reduce spending by:

  • Increase VAT to 20% (like most of the rest of Europe).
  • Slash public sector spending which has ballooned under Labour and is highly inefficient compared to the private sector.

With the extra money in the coffers, I'd like to see the government:

  • Cut income tax to increase people's take home pay and encourage people to work.
  • Cut corporation tax or give some other tax break to businesses.

1 thought on “Prime Minister: cut income tax, not VAT

  1. Jake Post author

    Money Week has just published this commentary also saying why the VAT cut is a bad move and that an income tax cut would be a better long term solution.

    As they put it:

    This government encourages shopping and discourages working

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