Saturday, November 29, 2008

VAT change notice 'wholly inadequate'

Following the pre-budget report and local government settlement, the City Council has been looking into the effects of the changes announced by Chancellor last week. On the VAT change, the City Council has commented:

"VAT – the standard level of VAT will be reduced from 17.5% to 15% for a 13-month period from 1 December 2008 to 1 January 2010. The Council is able to reclaim VAT, and so there is no impact on it’s spending. Whilst it is not clear what effect, if any, this will have on the Council’s income, the period of notice to implement the changes (4 working days) is wholly inadequate to effectively deal with the practical issues involved; and costs of making the associated changes are being reviewed."

So despite being leaked the weekend before to the papers (for which no government minister yet seems to have been raided by counter-terrorism police) the short notice of this panic measure by the Government is going to cause problems to the City Council, as it will doubtless to many small businesses up and down the Country as they struggle to change systems in time. I wonder if any retailers have seen lower sales this last week as people wait until monday before spending again in the expectation of lower prices, and if they can expect to make up for such lost sales later.

But if the measures proposed last week to try boosting the economy such as the VAT cut are causing problems, they are nothing to the problems that will be caused when we have to start paying back all the money Labour has borrowed on our behalf, and taxes rise.

Shadow Chancellor George summed up where we are best in his pre-budget statement response: "It is confirmation of the time- old truth that in the end all Labour chancellors run out of money and all Labour governments bring this country to the verge of bankruptcy. Stability has gone out of the window, prudence is dead, Labour has done it again. Massive borrowing, rising unemployment, tax giveaways for Christmas paid by tax rises for life, giving with one hand, taking with the other - everything we have come to expect from this prime minister."

By expanding public sector spending at unsustainable levels over a number of years, despite a growing economy, we have had both rocketing taxes (many by stealth) and increasing borrowing. Because they have failed to reform how many of the public services are run, much of the increased investment has been wasted, with little to show for it - but we do have an army of nannying public servants, dedicated to telling us what to do in every area of our lives, like how to play with tiddles.

As when Margaret Thatcher came to power in 1979, getting the public finances back into a sensible shape will be the key priority of incoming Conservative government. This will again be painful, but the alternative, Gordon Brown's approach of trying to borrow his way out of a debt crisis could destroy the UK's economy for a generation. Already the market is rating defaults on UK government debt as more likely than some company debt, and as the government tries to borrow more, the market will be less and less willing to lend, and will demand higher and higher interest rates. Confidence in our currency could collapse. Gordon Brown's incompetence has got this country's economy into a terrible mess, and they are now showing every sign of making the situation worse.

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