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The Tory deceit of VAT and the ‘Jobs Tax’: Ask a straight question, don’t get a straight answer
Andrew Marr interviewed David Cameron on his show broadcast live on the morning of 9th January 2011. Recently, people have been beginning to mutter very loudly how deceitful David Cameron and Nick Clegg have been in framing their explanation of the UK economy – and especially the ‘jobs tax’.
This excerpt is a shining example of David Cameron’s evasive nature in answering a simple question, such that you have unfortunately forgotten the question by the time you’ve got to the end of the answer.
http://www.bbc.co.uk/iplayer/episode/b00xmh5g/The_Andrew_Marr_Show_09_01_2011/
(begins at 35:40; ends at 37:10)
Andrew Marr:
You’ve mentioned jobs several times there. You must have had an estimate from your own Office for Budget Responsibility about the ‘jobs effect’ of the VAT rise to 20%. Roughly speaking, how many people are going to lose their jobs because of that?
David Cameron:
Oh look – look, of course, putting up VAT or any tax has an impact on the economy. You have to ask yourself the question – what would be the impact of not dealing with the deficit? We wouldn’t be sitting here talking about growth and jobs, we’d be sitting here saying, ‘you’re in opposition, sitting in a hole like Ireland, like Greece, and you’ve got the IMF knocking at your door. You’ve got credit downgrades, your interest rates are piling up, confidence is sapping out of the economy, the economy…
Andrew Marr:
Sure, but ..
David Cameron:
No, but this is very important. Any tax rise has an impact on economic growth, I can’t deny that for a minute. Economic forecasts are now done independently by the Office for Budget Responsibility. But you have to ask the question, what if you weren’t dealing with the deficit, which would be (I think) economic madness, and the second question you have to ask is, if you don’t do VAT, what tax would you do? The first category there would probably be National Insurance, that’s what Labour have committed to, and putting up National Insurance, as I’ve said, when you’re trying to get the economy growing and get jobs growing would be a very very perverse thing to do.”
Andrew Marr:
And nonetheless, [VAT] is a regressive tax. You yourself have said VAT is a regressive tax. Is it at 20% there for the long haul; there for good?
You can see at this point Marr simply waving the white flag after an exhausting non-answer.
A simpler explanation is provided by Stuart Adams, Institute of Fiscal Studies’ senior research economist, who has told Cathy Newman’s FactCheck that:
“VAT tends to weaken work incentives much like income tax or national insurance would. Rather than reducing the amount of take home pay that you can get for working an extra hour it reduces the amount you can buy with your take home pay. So VAT acts as a tax on jobs if you like – just like Income Tax and National Insurance do.”
Source: Channel 4 website
However, this is only part of the story. Indeed, estimates vary widely on the effect VAT has on jobs, from minimal to a lot. However, one aspect is definite – to miss out of the discussion altogether, as George Osborne and David Osborne have desperately tried to do in spinning their ‘jobs tax’ Tory Story, is grossly deceitful.
Shibley Rahman’s regular political blog is at http://shibleyrahman.com
Crucial part on VAT and jobs by the British Retail Consortium blocked by the BBC
As if Nick Clegg’s pledge on tuition fees wasn’t bad enough, do you remember this old chestnut?
Staggeringly, the crucial part on the effect of VAT on jobs in today’s BBC news story on the VAT (“VAT rise from 17.5% to 20%“) is missing. This account on the British Retail Consortium website is as follows. This is a crucial part of the story, as otherwise the Conservative spin on NI being the only jobs tax is simply lie and spin; the BBC, as an independent and partial broadcaster, should not be in collusion with lies and spin.
This is what Ed himself said on the matter, covered on ITN News, but non-existent on the BBC which prides itself on its balance and (lack of) bias.
Link to the site: http://www.brc.org.uk/details04.asp?id=1744
Here is the text of the British Retail Consortium’s original press release on the matter:
| VAT RISE WOULD COST 163,000 JOBS |
| May 27, 2010 |
| Increasing the VAT rate to 20 per cent would cost 163,000 jobs over four years and reduce consumer spending by £3.6 billion over the same period.
The biggest challenge facing the new Government is to reduce the budget deficit without damaging the recovery. Now, for the first time, independent analysis carried out for the British Retail Consortium (BRC) quantifies the economic impact of a range of possible VAT increases and of the National Insurance increases already announced by this Government. The research concludes there is no silver bullet that will allow the Government to raise large amounts of revenue without having a substantial effect on the economy. Employment, consumption and GDP would all be hit significantly by tax rises. The BRC is calling on the Government to follow through on its recent statements that public spending cuts will be prioritised over tax rises as a route to tackling the deficit. The BRC is also cautioning that halving the deficit over four years not three would better support the recovery. In its first year, a VAT rate of 20 per cent would reduce the deficit by £11.3 billion but by the end of that first year there would be 30,000 fewer jobs in the UK – across all employment sectors – than if there had been no increase. After four years that figure would be 163,000 fewer jobs. A year on from raising VAT to 20 per cent, consumer spending would be £1.6 billion less than it would have been and after four years, £3.6 billion less. Higher VAT means lower demand for goods and services as prices go up and companies’ margins are hit, meaning they have to cut costs to keep trading so employ fewer people or hold-back on job creation. The analysis commissioned by the BRC also examines the impact of a range of other possible VAT increases. A 19 per cent VAT rate would cost 99,000 jobs over four years while a 22.5 per cent rate would mean 317,000 fewer jobs over the same period. The new Government has said it will increase employees’ National Insurance Contributions by one per cent and employers’ by 0.5 per cent. That will reduce UK job numbers by 25,000 in the first year. The UK jobs total will be 109,000 down after four years. Consumer spending would contract by £948 million in the first year and £2.2 billion after four years. The Director of the BRC explained, “The budget deficit is serious. It has to be tackled but proposals must be judged against the implications for jobs and growth revealed by this new information. “The main tool has to be cutting non-vital public spending. Removing some of the previously-planned National Insurance increase and signals that the Chancellor will look for an 80:20 split between public spending cuts and tax rises are a welcome start. “Business growth will get the country out of the hole it’s in, led by retail. The Government must now deliver a route to stability that supports companies and customers by avoiding damaging tax rises.” The study has been carried out for the BRC by the Centre for Economics and Business Research (CEBR) using its model of the UK economy. The model assesses the initial revenue raising impact of the taxes then the follow-on consequences as they cascade through the economy. First round effects can include immediate reductions in spending by those most affected by a tax rise. Second round effects can include firms reducing employment and investment as costs or margins are hit. This feeds through to lower demand and lower productive capacity. Notes to Editors: The full BRC/CEBR report Reducing Public Borrowing: Balancing Spending Cuts and Tax Rises is available at : Media contacts: |
And what did David Cameron originally say to Jeremy Paxman?
Tory Story 3 – Some New Year's resolutions for Labour
By Shibley Rahman / @shibleylondon
Opinion polls consistently return the verdict that Labour is economically incompetent compared to the Conservatives. Many would indeed agree that Labour didn’t get its economic messages across competently in the 2010 campaign. Labour tried to explain its economic strategy through a series of university-style tutorials, and sloppily allowed various ‘facts’ to go unchallenged. Ed Miliband and his team will have to learn from these mistakes.
This article looks at just three assumptions of the Tory Story on the economy. The true success of the Tory Story is its simple but misleading messages. The story has various components: for example, NI is “the jobs tax” but VAT isn’t, Britain is going bankrupt, and government debt is like a credit card debt. Perhaps Labour new year’s resolution should be to stop these corrosive myths from going unchallenged. Rebuilding the trust and confidence of the electorate in Labour’s economic strategy is a marathon not a sprint, so the sooner we get started the better.
Will the VAT have no effect on jobs?
To shift the limelight onto NI as the “jobs tax” is also to present an attractive story to the voter that a VAT hike presents no threat to jobs. The British Retail Consortium (BRC) in May 2010 forecast that as many as 163,000 jobs could be lost in the next four years if VAT is increased. They said that, in its first year, a VAT rate of 20% would reduce the deficit by £11.3 billion, but by the end of that first year there would be 30,000 fewer jobs in the UK, across all employment sectors, than if there had been no increase. The BRC has, instead, urged the government to prioritise public spending cuts over tax rises to tackle the budget deficit, as well as to aim to half the deficit over four years rather than the proposed three. Voters will be looking carefully at the unemployment count, while the expert economists forensically examine the GDP statistics, over the course of 2011.
Is government debt like a credit card debt?
David Cameron and Nick Clegg have consistently likened government debt to credit card debt (like paying for your weekly groceries). This is a plausible common-sense approach based on the electorate’s instinct for belt-tightening, and the hardships they will be experiencing in difficult times. The analogy is clearly weak, but analysis of that is way beyond the scope of this article. Given that the public appear to like this comparison, it might be useful to explain also what might go wrong in such terms. The biggest threat for the UK in 2011 is that unemployment goes up and therefore benefit payments go up, while tax receipts go down. This would be like credit card bills beginning to “flood in”, while you are unable to deposit any money into your bank account.
Is Britain going bankrupt?
In January 2009, David Cameron suggested that there was a “risk” that Britain would go bankrupt. George Osborne also has repeatedly warned that the country was facing financial meltdown. When asked on the BBC’s ‘Andrew Marr Show’ whether it is possible that Britain would go bankrupt, Ken Clarke said in contrast:
“I don’t think it’s a realistic possibility. Though, I mean I’m as gloomy as most people…I think it’s very important to realise the constraints of a responsible opposition.”
The media and the public seem disinterested in discussing this, but the spin of a bankrupt Britain relentlessly goes on unchallenged. Foreign investors currently fund about 35% of the government’s total debts, and there is currently little sign yet of them losing their appetite for government bonds, or gilts – the German government has had more problems selling its debts at recent auctions than the UK.
The solution
Thankfully, official data from the Office for National Statistics about GDP and unemployment will be hard for the coalition to put a positive spin on. When commentators say “it’s the economy stupid”, they fail to appreciate one further addition to that for 2015, that is, “and its social and economic consequences”.
In the meantime, Ed Miliband and team will have to work hard at identifying the reasons why the public trusts the Conservatives with the economy more. It is undeniably hard to explain in a punchy manner why the deficit grew so big under Labour, but a good start would be to point out that the Conservatives did indeed match our spending plans until the collapse of Lehman Brothers.
I wonder what resolutions Labour will make in getting its message across more successfully in 2011…
This article was originally published in LabourList on 2nd January 2011. It has had 69 comments so far.
