Wednesday, 5 January 2011

VAT rise 'will backfire'

As the Morning Star reports today, there is unanimous condemnation of the VAT rise that took effect yesterday, 4 January:

The coalition government landed its latest body blow on Britain today with a VAT rise that critics warn will combine with brutal job cuts and rising inflation to create a perfect storm of misery for ordinary people.

Multimillionaire George Osborne's tax rise on most goods and services from 17.5 per cent to 20 per cent - the highest rate in British history and among the highest in Europe - drew criticism from politicians, trade unions and economists on both the left and right.

As the rise came into effect yesterday Mr Osborne boasted that it was a "necessary step towards Britain's economic recovery."

The Chancellor says that the change will raise £13 billion a year.

But Labour leader Ed Miliband accused Mr Osborne of "treating the British people like fools" and said that "everybody knows it's poor and middle-income families that will be hit hardest."

Retailers themselves have warned that the measure will backfire and depress spending in high streets and drive inflation, which is already outstripping the bulk of pay rises for workers in Britain.

The Chartered Institute of Personnel Development has predicted that the VAT rise, along with the government's spending cuts, will see more than 1.6 million jobs lost in both public and private sectors by 2016.

CIPD chief economic adviser John Philpott warned last year that 250,000 private-sector jobs losses will come from the VAT rise alone.

The cost of basics such as petrol, food and clothing all rose, as did everyday luxuries such as beer - with the GMB union warning that the rise puts thousands of pubs at risk.

Left economists told employers to expect rising anger among ordinary people hit by rising prices and lower incomes.

"Combined with above-inflation fare increases, the public-sector pay freeze and welfare cuts there will be a real squeeze on spending again this year, which will inevitably increase demands for higher pay settlements," said Left Economics Advisory Panel co-ordinator Andrew Fisher.

"Pay will therefore increasingly become the central issue for industrial disputes.

"The profitability of Britain's corporate sector is at near record levels and this VAT rise could easily be absorbed by retailers.

"Instead however they will pass on the costs to the public through higher prices and potentially job cuts in the retail sector."

Trade unionists argued that far more than £13 billion could be saved from targeting tax avoidance by big businesses.

TUC general secretary Brendan Barber said: "Raising VAT, while failing to tackle the tax loopholes exploited by big businesses means that ordinary people will soon pay a higher rate of tax on purchases and earnings than the banks pay on their profits."

And Communist Party of Britain general secretary Rob Griffiths called for a windfall tax on the super-profits of retail, pharmaceutical, banking and energy monopolies.

Even Professor Philip Booth of the pro-business Institute of Economic Affairs argued: "If the government insists on increasing taxes there are better candidates than a general VAT rise."

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