Today’s Telegraph story places a strange headline and spin on Tory plans for curbing the budget deficit.
We are told that Tories are considering a VAT hike to 20%, after this government’s hike back to 17.5% at the end of this year.The source is said to be Shadow Cabinet, probably meaning it is not the Leader or the Shadow Chancellor.
The story does correctly report that the leadership understands that we have a spending problem. The UK is not under taxed – it is overspending at its current level of income and wealth. Paradoxically, if you raised tax rates on income and wealth from here you could end up with a worse deficit problem, as you could damage the recovery and encourage more businesses and entrepreneurs to go abroad or stay abroad.
Whoever briefed the story did not seem to grasp the scale of the problem. The deficit and borrowing levels are running at around £200 billion a year. A £10 billion spending tax increase would only deal with 5% of it. We need a five year programme of reducing spending, by cutting out waste, inefficiency, high cost and less desirable programmes and areas of government. We also need a five year programme designed to encourage a faster growth rate, which means low taxes on enterprise and wealth, not higher. The faster we grow, the quicker the deficit will come down given sensible spending disciplines.The good news is the waste, inefficiency and needless expenditure is now so huge that the cuts can come, they need not damage valued public services like schools and hospitals, and they in many cases will be popular. This website has been idientifying some of them, with more to come. For all those who do not regularly read this and want to ask what should we cut, please read the series from two weeks ago and you will see some of the answers.