Balls calls for a temporary VAT reduction
ED Balls, the shadow chancellor, yesterday called for an emergency VAT cut to boost the economy.
In a lecture at the London School of Economics, Balls urged chancellor George Osborne to “reverse VAT temporarily until the economy is growing strongly again”.
He said: “When the last Labour government temporarily cut VAT to 15 per cent for 13 months, [Osborne] dismissed it, saying people wouldn’t even notice.
“He may not have noticed – but at the end of each month, millions of families did see extra money in their pockets, and thousands of businesses saw the difference in their bottom line.”
He added: “A VAT cut is not like a National Insurance rebate or a spending cut – it is more money in your pocket at the end of a shopping trip.”
George Osborne raised VAT from 17.5 per cent to 20 per cent in his first Budget as chancellor. It was his biggest deficit reduction measure, netting the exchequer almost £54bn over the course of the parliament.
Nick Clegg, the deputy prime minister, hit out at Balls for proposing the emergency VAT cut, insisting Labour was “perilously close to permanently and terminally losing the British taxpayer’s trust on the economy.”
Proposing an un-funded tax cut is a politically risky move for Balls, but he insisted he was not a “deficit denier” and said he had a history of fiscal prudence.
“Labour has work to do to restore our political credibility, but part of that is setting out alternatives to the vicious circle of cuts and tax rises,” he said in a question and answer session following his lecture.
“We would take a more balanced approach to getting [the deficit] down in a more steady way,” he said.
“We wouldn’t raise the tax that has the biggest impact on spending while confidence is so fragile.”
ANALYSIS | BALLS REWRITES RECENT HISTORY
WHEN Ed Balls delivered his Bloomberg speech during the Labour leadership contest, he used the word “double-dip” five times. Although he was too clever to predict a second recession, he waxed lyrical about those who did.
He also distanced himself from the other hopefuls by hitting out at former chancellor Alistair Darling’s plan to halve the deficit over four years. “I told Gordon Brown and Darling in 2009 that – whatever the media clamour at the time – even trying to halve the deficit in four years was a mistake,” he said.
Yesterday was Balls’ first big lecture since becoming shadow chancellor, and he used it to shift his position on both those issues.
On the chances of a second recession, he said “I have been consistent in saying that a double-dip recession was never the most likely outcome”. From now on, he will claim that any growth – anaemic or otherwise – would have been more full-throated had the chancellor scaled back the size and speed of his spending cuts.
Second, Balls will say that he does support a four year deficit reduction plan – but not the spending cuts and tax rises that Darling was planning.
Balls will claim that measures like the 2.5 per cent VAT cut he has called for would actually boost jobs, spending and growth by so much as to offset any up-front cost. Ironically, that makes him sound like a supply-side reformist, although he is anything but.