Friday, November 25, 2011

£50,000 - the typical household income, according to Labour

Labour's back-of-a-fag-packet policies were debated yesterday in Gateshead Council when a Labour motion, copied and pasted from their national website, was debated. I've already discussed the section of the motion which referred to their magically regenerating bank bonus tax which they are able to spend 3 or 4 times over. What I didn't mention is that many Labour members also claim that the bank bonus tax can be used to pay for all their other spending commitments, for reducing the deficit, for paying for their pet projects, for paying for increased services. You name it and Labour reckons this one tax will be able to pay for it. Anyway, this post is about a different part of Labour's back-of-a-fag-packet policies: their proposal for a "temporary" cut in VAT.

Labour claims that the typical couple would "save £450" by this temporary tax cut. So let's examine this claim. Firstly, there is no definition of "temporary". It is completely unclear how long their proposed cut to 17.5% would last and despite being asked by us yesterday, the councillors refused to give any details. I suspect they are completely clueless. They don't know because Labour have not worked that bit out. Presumably there was no room on the back of their fag packet for such details.

A 2.5% cut would cost £12.5 billion. There was no mention at all as to how a Labour government would make up the loss of the revenue. This amount will of course be higher if Labour's definition of "temporary" lasts longer than a year. Presumably this whopping amount of cash will simply be borrowed. At a time when western economies are facing a debt crisis, Labour comes forward with a plan to make a bad situation worse. Nor would a cut in VAT necessarily help the economy. It may, or may not, give a short term and rather small boost to retail sales (the experience of 2008-9 when there was another temporary VAT cut suggests there would be no such boost). Were such a boost to happen, the chances are that Britain would simply end up importing more.

The most brain dead of Labour's claims about VAT is that a typical family would save £450. What they fail to say however is that the typical family would have to spend £18,000 (£1500 a month) on goods that are fully VAT rated. Whilst there are families around that do spend that amount of money, they are a small minority and are in no way representative of the typical family. The majority of people's outgoings are on zero or lower rated goods and services such as water, gas, electricity, mortgage, pension contributions, rent, kids' clothes, half the food they eat, bus fares, newspapers and so on. That would mean Labour's typical family spending £18,000 on VAT rated goods would have an overall expenditure of around £40,000 or a gross income in excess of £50,000!

This crass ignorance of how real people live further ignores the fact that in Gateshead, income levels are lower than most of the rest of the country. Quite what the residents of Gateshead will think of Labour when they are told that Labour thinks they are raking in the money is yet to be seen.

And one final point, how would Labour square their plans to cut VAT with their plan to raise VAT from 17.5% to 19% had they won the last election? Perhaps the anonymous Labour readers of this blog, especially that really stupid one (we all know who we mean) would like to elaborate.

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