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Saturday, February 13, 2010

Taxing times

This morning's Times has an exclusive in which they say that both Alistair Darling and George Osborne, the Shadow Chancellor, are considering raising VAT to the European average of 20 per cent from the current rate of 17.5 per cent.

They say that this would raise an extra £13 billion a year at a time when financial markets are searching for signs that whoever takes power is serious about tackling Britain’s £178 billion deficit:

One City source close to the Tory tax team said: “There is a view across the Conservative Party that VAT is going to have to go up.”

The Chancellor is also keenly aware that Britain needs to retain the confidence of the credit-rating agencies. He has privately ruled out either raising income taxes or increasing the scope of VAT, but has deliberately left open the possibility of increasing the sales tax in the next Parliament.

It is understood that there are discussions in the Treasury about whether the Government should abandon its deliberate pre-Budget opacity and instead look to win points for honesty by admitting that VAT may have to rise.

Ken Clarke, the Shadow Business Secretary, told The Times that any post-election cuts imposed by a Tory government would be worse than the squeeze of the early 1980s. “We are going to have to be much tougher on public spending than Margaret Thatcher ever was,” he said.

Asked about VAT, Mr Clarke told The Times: “We are vague about tax increases because we don’t like them.”

Personally, I hope that this is not true. I accept that drastic measures may be needed to get public finances back onto an even keel but VAT is a regressive tax that hits the poorest hardest. A rise of those proportions will fuel inflation and hit demand for many goods and services.

Surely, it is far better to shift tax rises to income tax which at least relates to people's ability to pay. An increased tax on the very wealthy would have the same beneficial effect on public finances without the same pain for the economy and for those struggling to make ends meet.
Surely as the government defieciet is roughly the same as the amount given to the banks, the real answer is to fully nationalise them and use the profits of which there are still billions to plug the gap.

It is quite blatantly obvious really
The BBC licence fee's a regressive tax that hits the poorest hardest, too. What are your views on that?
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