Belfast Telegraph

Thursday 24 April 2014

It’s simple: raising VAT will cost jobs

Does George Osborne still have “no plans” to raise VAT to 20 per cent in his emergency budget in four weeks' time?

Retailers are certainly keen to persuade him not to come up with any: their analysis suggests the rise in VAT so many people expect would be more damaging to employment levels than the rise in national insurance contributions for employers the Chancellor has said he will drop because they are “a tax on jobs”.

The British Retail Consortium and the Centre for Economic and Business Research say a 20 per cent VAT rate would cost 163,000 jobs over the next four years, compared to the 109,000 rise in unemployment to which it thinks higher NICs for employers and employees would lead.

It is not alone in such fears. The motor industry, one of the main beneficiaries of the year-long cut in VAT during the recession, is lobbying feverishly.

It says an early rise in VAT would do severe damage to car sales that look fragile now the scrappage scheme is finished. At the very least, motoring bosses are urging Mr Osborne to put off VAT rises until next April.

There will be a great deal more of this sort of research published in the weeks ahead and it should not be written off as special pleading by the particular interest group publishing it.

There is not much rocket science in the theory that if people have less money in their pockets because they're paying more tax, they'll spend less.

That's where the job cuts come from.

Just don't make the mistake of thinking the alternatives are any more palatable.

The BRC and CEBR are much taken with the Government's suggestion that the budget deficit should be tackled through an 80:20 ratio of public spending cuts to tax rises.

But talk of “non-vital public spending” conveys the impression that this is money that can be cut without outwardly damaging the economy. It is not: public spending cuts inevitably mean job losses too.