VAT rise ‘bad economics’, says think tank

Today’s rise in VAT to 20% is bad economics and is a result of the coalition shying away from further spending cuts, according to the Institute of Economic Affairs (IEA).

Philip Booth, the editorial and programme director at the IEA, says the rise indicates cuts in public spending are insufficient.

He says: “Today’s VAT rise is simply bad economics and important potential spending savings have been avoided for transparently political reasons.

“If the government insists on raising taxes there are better candidates than a general VAT rise”

Philip Booth

“If the government insists on raising taxes there are better candidates than a general VAT rise. However, today’s rise should be a wake-up call that the spending cuts are insufficient. If the government wants to prevent growth from stalling, it will cut spending further, not burden the populations with an unnecessary tax rise.”

Soon after the election the government announced £6.2 billion of in-year cuts for 2010 and they plan to cut public sector by more than £80 billion before 2015. (article continues below)

Booth says: “Government spending, despite the Chancellor’s proposed savings, need to be cut further.”

Booth criticises choices like ring-fencing the NHS budget as “politically-motivated profligacy” and says moves like the proposed rises in public pensions above the rate of inflation and the retention of “quirks” like free bus travel and the winter fuel allowance have led to the need to increase VAT.

He says: “We did not get ourselves into the current situation because taxes were too low but because government spending rose out of control.”