24th November 2008

Pre-Budget Announcement : I Don’t Understand Economics

posted in A Moose's Life |
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Whoopie bloomin doo … so what … Chancellor Alistair Darling has announced a 2.5% cut in VAT … so that equates to £25 saving in every net £1000 spend .. in theory. ie £12.50 on the £500 net price LCD TV … £1.25 on the £50 net price weekly food shop. Yeah that is really going to stimulate the economy … probably not.

And what is stopping retailers from not actually passing on that saving in the sense they will raise the net price of products to pocket the difference in the same way some banks haven’t been passing on the interest rate cuts or increasing charges on their other services.

Was there any news on wholsesale income tax cuts or corporation tax cuts for businesses. Perhaps there should have been more focus of these?

Whereby reduction in corporation tax might be the make or break to stop some of the 100 businesses a day closing, as well as actually keeping people in a job?

Where were the exciting income tax cuts on what actually goes into peoples pockets, so they can make the decision on whether to spend, save or pay off debts?

Obviously we are all going to pay for it later. Have I missed something ?

Finally, this £500 billion bailout of the embattled banking industry, would it have been more effective to put towards reducing income tax & corporation tax for UK citizens, when as mentioned it is likely some banks will pocket a lot of this or have been inert in assisting their customers who will still pay for it long term.

Am I missing something, perhaps someone with sound ecomonics background can explain to me in laymans terms?

Yours Faithfully

An Unimpressed Moose

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There are currently 7 responses to “Pre-Budget Announcement : I Don’t Understand Economics”

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  1. 1 On November 24th, 2008, Lammo said:

    By no means am I an economic expert, but I can make an educated guess at a couple of points:

    Savings to be had… “£1.25 on the £50 net price weekly food shop” – Not quite, as food isn’t vat’able, so whilst there should be some nominal savings to be made at the Supermarket, it won’t make any difference to the price of a loaf of bread.

    “what is stopping retailers from not actually passing on that saving” – Nothing at all, and it wouldn’t surprise me if this was Captain Darling’s intended outcome: Keep businesses afloat by enabling them to increase profit margins without raising prices.

    “Obviously we are all going to pay for it later” – Oh yes, and how! It’s widely recognised that the 2.5 decrease in vat is being handed out as a sweetener before a planned rise to 20-22.5% in 2010. I’d love to know why the best economic brains in the country (allegedly) seem to think that the best way out of debt is to borrow more money they can’t afford to pay back – but then our PM managed to sell all the countries gold at the bottom of the market when he was Chancellor, showing how “prudent” he could be with other people’s money.

    “Was there any news on wholsesale income tax cuts or corporation tax cuts for businesses” – Nope, the “great” news from our Chancellor was that an INCREASE in corporation tax has been postponed, and a new 45% rate in Income Tax will apply to those earning over £150,000 p.a, but not until after the next election (by which point this whole mess that Gordon got us into will be someone else’s problem)

    “would it have been more effetive to put towards reducing income tax & corporation tax” – I’ve yet to see a decent budget that rewards ambition and enterprise – instead we have the usual Robin Hood politics whereby anyone who dares work their way up to a decent salary or generate profits can be milked like a cow to pay for “initiatives” and extra dosh for druggies, dolies, Vicky Pollards and the “bad back brigade”

    At least Captain Darling’s found a way to save some money – I noticed on my latest vat return that they no longer give you a postage paid envelope to return the (compulsory) form. Way to help out small businesses Darling!

  2. 2 On November 25th, 2008, Lee McCoy said:

    Mate, there’s no VAT on essential food (most of what you buy) so there’s no change to that.

    Also there’s no VAT on children’s clothes – no impact there

    There’s no VAT on books, so that won’t help

    There’s no VAT on public transport so that won’t help either.

    effectively no change on the price of petrol (vat reduction is basically negated by an increase in duty)

    is just a smoke screen so they can raise taxes!!

  3. 3 On November 25th, 2008, Paul said:

    So how much does the government say this vat reduction is costing them? Compared to what they handed on a silver platter to bail out financial institutions? Why wasn’t reducing income tax & corporation tax (not just freezing) seen as a better option. Taxing cigs & booze by pennies won’t change peopls habits, unless they doubled it overnight, then we get into argument of other things they should perhaps tax rather than obvious targets.

  4. 4 On November 25th, 2008, Paul said:

    As for unemployent, don’t start me on that one, if anyone is out of work for more than 3 months whther they are actively seeking on not, I am sure there are enough low skilled jobs / chores they could be doing to actually earn benefits.

    Why tax the wealthy more? Don’t they have more disposable income or are they being encouraged to take they hard earned cash into offshore accounts & businesses abroad?

  5. 5 On November 25th, 2008, Lee McCoy said:

    well. deep in their document they said that they don’t even expect more than half of the reduction to “spent” they said that half of it will be used to reduce personal debt.

    So only 1.25% will be filtered through.

    Also most of the experts say that they’ve massively over estimated how the economy will recover in 2010 so they’ll need to borrow much more than they’re saying. To pay for this taxes will have to go up even more.

    I said to Laura last night that we’ve got to get out of this country ASAP.

    She doesn’t quite grasp the seriousness of the issue. Trust me we’re completely shafted. Your grandkids (when you have them) will still be paying for this!

  6. 6 On November 25th, 2008, Diane said:

    I’ve just had a splurge of printed catalogues delivered for a variety of shops. I assunme they won’t be reprinted so it’ll lead to confusion over prices and when discounts aren’t applied we’ll know.

    I suspect it’ll not change many prices, but certainly when it gets put back up at the end of next year prices will go up!

  7. 7 On November 28th, 2008, Paul said:

    Check out Zak’s POV here from a merchant perspective at http://www.thebeardedwarrior.co.uk/?p=34 highlighting more good reasons why Captain Darlings VAT reduction is not very appealing.

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