Yay! I'm feeling richer! NOT!

Former Member

So, will Alastair Darling's cut of 2.5% on VAT entice you to spend? Or has the government missed an opportunity here? I understand that most businesses don't think that repricing their items to reflect the measly VAT reduction, is worth their while so prices won't change that much anyway.

I think this Labour government has f***ed us all over for years to come. :banghead:

Former Member

To be fair - if business don't reprice their items then they make a little bit more profit. Given the change is unlikely to make any real difference to customer spending it's surely better for them that they don't pass it on...

Overall though, if the aim of this was to boost spending in the short term against a long term increase in taxes then it's the most pointless attempt I've ever seen.

I'm with the Lib Dems, oddly, if you want people to feel better off and start spending you put more money in their pockets through a change to income tax, you don't slightly reduce the price of expensive items no one can afford in a few months time...

It's also useless for lower income families, since most essentials aren't even covered by VAT. I'm really surprised that there was a major increase in the number of items that are VAT exempt.

All in all seems like one hell of a missed effort. Looks like the aim was to increase business revenue rather than actually encourage people to start spending again.

Former Member

You know when they changed to the Euro, all the businesses realised that customers wouldn't be 100% of the 'real' price and so just inflated them. I expect exactly the same to happen, they will just absorb the tax cut because customers won't really realise what's going on.

I mean, look at crude oil. Price of a barrel has dropped by 60% or something daft. Price of petrol at pumps has dropped by what, 10%? I would have agreed with the lib dems as well - tax cuts for those on lower incomes (who statistically spend more of their income because they can't really afford to save - giving tax breaks to rich people means they put even MORE in their savings account, which is great for them but bad for the economy).

Though one could argue increased business revenue is part of the house and firms model so in the end it has the same effect. Except it will be more evenly distributed and so a greater proportion will go into buying gold and stuff like that

Former Member

Though you could argue more in bank accounts will also strengthen the banks, which means they will be more inclined to loan again at decent interest rates - restimulating the UK economy. Whereas money being spent may go as much on imports as it does in the UK.

Former Member

They shoud have decreased income and business tax.

I mean, look at crude oil. Price of a barrel has dropped by 60% or something daft. Price of petrol at pumps has dropped by what, 10%?

Oil is purchased in futures so the oil being consumed today was bought at a difference price than what it currently is.

I would have agreed with the lib dems as well - tax cuts for those on lower incomes (who statistically spend more of their income because they can't really afford to save - giving tax breaks to rich people means they put even MORE in their savings account, which is great for them but bad for the economy).

That is Keynesian nonsense. Savings drive investment which affects output. Diverting prodution to only consumer goods in the short term will just prolong a recession.

Former Member

I'm not an economist but then I doubt you are either it's a subtle mix of getting the balance right. Right now, spending in the UK is falling even in the holiday season. You need to stimulate this, in order to preserve jobs, and in order to keep people's quality of life up. Because there is more to life and running a country than long term economic gain - it's about people. I'm not advocating all of one and none of the other, it is about balance. You'd happily advocate people lose their jobs in the short term because we will be in a better position long term. Because that's what neoclassical economics dictates.

I believe you need a healthy level of government intervention to ensure the welfare and prosperity of people, not just growth and good levels of inflation.

Former Member

I've already done a thread about the pre-Budget report last night. Clearly, it's so good (or bad, depending what you think) that it's worth debating twice.

ShyBoy wrote: »

I believe you need a healthy level of government intervention to ensure the welfare and prosperity of people, not just growth and good levels of inflation.

Stargalaxy agrees with ShyBoy horror! Normally, the thought of government intervention is anaethema to me. I'm with Ronald Reagan when he said "The nine most terrifying words in the English language are 'I'm from the government and I'm here to help.'". Unfortunately, we're living in exceptional times at the moment. The government is pretty much the only organisation which is big enough to deal with something as serious as this.

Now all I have to do is persuade you that the human race is becoming more stupid each day, and my work will be complete.

Former Member

stargalaxy wrote: »

I've already done a thread about the pre-Budget report last night.

Maybe, but mine's prettier!

Former Member

I must admit to being completely confused by this move, obviously I understand it, but its the why I dont get.

Goods prices in the shops are falling anyway, deflation is entirely possible, so what you want is more people with more money, not lower prices by a tiny amount.

They should have used the money to up the amount you can earn before paying tax, that way the poorest would feel the most benefit, and everyone would feel a bit better off.

Former Member

ShyBoy wrote: »

You'd happily advocate people lose their jobs in the short term because we will be in a better position long term. Because that's what neoclassical economics dictates.

I believe you need a healthy level of government intervention to ensure the welfare and prosperity of people, not just growth and good levels of inflation.

What? I wasn't talking about ther merits of intervention but the determinant of growth and job creation.