Darling Moves In Right Direction
Alistair Darling has cut VAT and other taxes to try and boost the economy. Government debt will rise to a shockingly high level. But tax cuts are the right move nonetheless.
As widely predicted, Alistair Darling has cut taxes today and increased spending.
The most significant cut is on VAT, which will fall from 17.5% to 15% on 1st December. This is a temporary cut that will only last until 31st December 2009. However, duties on fuel and tobacco will be increased to make up for the reduced VAT on those products. The VAT cut should boost the economy by £12.5bn.
More giveaways
- The Chancellor extended this year's temporary rise in income tax allowance which was originally introduced to soothe the fuss over the 10p tax rate.
- Increases in child benefit will be brought forward three months to January 2009.
- Pensioners will get an extra £60 payment in January.
- The government will offer an extra £1bn in loans to small businesses that are unable to get finance from banks, via a `Small Business Finance Scheme'.
Rises to come
However, Darling does plan to increase taxes in a few years' time. In April 2011 a new income tax top rate of 45% will be introduced for people earning over £150,000 a year.
National Insurance contributions for both employers and employees will rise by 0.5% at the same time.
Poor numbers
It's not surprising that taxes will have to be increased in 2011 as some of the debt numbers in today's report are shocking. For example, government borrowing is expected to rise to £118 billion in 2009 - 8% of GDP.
So I can understand why many people will be horrified by the government's decision to borrow more money. It doesn't seem rational to borrow more money when government debt is already too high.
And here at The Fool, we wouldn't normally advise an individual to solve a debt problem by taking out fresh loans.
But when it comes to governments, it sometimes makes sense to borrow more. And we're in one of those moments now. As I argued in my blog last night, our economy is in a mess and we desperately need a boost to demand to avoid an economic slump. If we have a slump, the government's balance sheet will only deteriorate further.
So I welcome today's announcement.
We'll cover the report in more detail later in the week. In the meantime you can find out more information about how the Pre Budget Report will affect you on the Directgov website.
Most Recent
Comments
-
Ed what a silly statement will it work maybe maybe not, well based on evidence so far and from the reaction from the public it won't work. The Chief Exec of Sainsbury's said on Question Time Thursday night we have shops reducing prices by 20 or 30% and still peopple are not buying so what difference would this 2.5% cut which is pennies really make.[br/][br/]Darlingh has added another 12 Billion to our exsisting overdarft for something that will have no effect.[br/][br/]Also too right when you said people disagree over whether it was government spending that got us out of the great depression, events that happened between 1939 and 1945 may also have been a big factor in that also, when of course millions became Public Sector workers. Also the emergence of new industries such as the automobile, aviation and film industry and the eventual re-emergence of free trade may in the end have got us there.
REPORT This comment has been reported. -
Hi Jerry,[br/][br/]I'm sorry to hear about your brewery. It's a real shame that you've been hit by this. [br/][br/]Perhaps the Chancellor should have introduced a smaller VAT cut and not increased beer duties. Or cut direct tax rather than VAT.[br/][br/]But I stand by my view that a fiscal stimulus was the right thing to do even though the government's finances are poor.[br/][br/]Ed
REPORT This comment has been reported. -
I trust you don't enjoy a glass of good beer Ed.[br/][br/]I have a micro-brewery small enough not to have to (yet) worry about VAT and it is this (other than my good beer dare I suggest) that has enabled me to be competitive with the big boys.[br/][br/]Now I have not only the 2.5% loss to worry about but the added 8% to the duty as well; nice one.[br/][br/]That, sir, at my level, will put about 5p on your pint, ex Brewery trade, depending, on its gravity. [br/] [br/]You will excuse my hollow laughter over the need to support the small business.
REPORT This comment has been reported.
Do you want to comment on this article? You need to be signed in for this feature
02 December 2008