VAT cut... who is going to buy more stuff?

[merdat]

So they cut VAT to get people spending again, and then in a couple years stick it back up again to make the money back and we are in the same boat all over again?

If he does cut vat it will not be for 'a couple of years ' as it will be costing him 12.5 b -more like 6 months, get you through the winter type thing .

[TheAnimus]

Saracen, slightly off topic, but do you think Labour will of forced us to go begging bowel in hand to the IMF again?

Also remember a lot of the really high value goods are bought as futures, so it will take a little while for the big jump to take effect. Also many of the major supplies have 'FX Options' to help mitigate this risk.

The effect of a currency having a base rate too far below inflation causes the mess we are in right now, i wounder if a re-alignment in fed management will put the dollar in a better place. (Perchasing Power Parity n all).

[moogle]

2.5% is tiny (for us/me), I won't be buying anything more than I usually buy I'd say.

[arthurleung]

Most stuff I buy (in the supermarket) is VAT Free anyway so really there is not much change.

[Saracen]

Saracen, slightly off topic, but do you think Labour will of forced us to go begging bowel in hand to the IMF again?

Also remember a lot of the really high value goods are bought as futures, so it will take a little while for the big jump to take effect. Also many of the major supplies have 'FX Options' to help mitigate this risk.

The effect of a currency having a base rate too far below inflation causes the mess we are in right now, i wounder if a re-alignment in fed management will put the dollar in a better place. (Perchasing Power Parity n all).

I don't know, Animus, partly because we're not seeing the government's accounts. But I certainly think there's a serious risk of it, yes.

As you are no doubt aware, even government borrowing isn't a bottomless pit, and they can't just create money by printing it. Or rather, I suppose they can just print it, but all that achieves is paper money, the value of which just goes down. In real terms, if governments want money, they can't print it. They either have to tax it, or borrow it. And borrowing isn't a solitary occupation - for every borrower, there has to be a lender. The real problems will come when and if lenders stop being willing to lend.

One important factor, in my view, will be how the international markets see this, and what happens to Sterling. The drop we've already seen is certainly a lack of confidence in Sterling. If it were to get a LOT worse, well, who knows.

After all, we don't really know the extent, at the moment, of current government debt. We'll find out more about that tomorrow. But one of the things that worries me is bits we won't find out tomorrow, which is the "off balance sheet" stuff.

For instance, if I have a £200,000 mortgage on my house, I'm in debt by £200,000. But, if instead of taking out that mortgage, I manage to convince someone to buy the house and give it to me, providing I sign a contract saying they can charge me £1000/month for a minimum of 30 years, is that a debt? I mean, I might be paying ludicrously over the odds for my window cleaning, and I might have a contractual commitment to buy window cleaning for 30 years at extortionate rates, but strictly speaking, it's a service contract and so the cost gets charged against income in the years in which the service is provided, and it isn't a debt.

That, in essence, is what Brown has been doing with PFI. It is not, technically, a debt so doesn't show up in government borrowing figures, but the contracts, and the commitment to pay, exist. It's a typical, cynical politician's stunt. You want to increase borrowing, but you've promised not to, so what do you do? Simple - call it something else. Or you've promised not to increase the basic or higher rate of income tax (which, according to the news reports, is exactly what they'll be announcing they intend to do in tomorrow's report), so what do you do? Simple - increase NI contributions instead, It might have the same effect, and people are still worse off and paying more tax, but you kept the word of that promise, even if you broke the spirit of it.

So will we end up before the IMF, begging bowl in hand? I don't know, and I sure hope not. But we won't know until we find out quite how badly we're already in debt, quite how much Brown wants to spend funded by borrowing, and quite how the international markets react. If he wants to taps out our remaining sources of borrowing, and it's not enough and he needs more from somewhere, then maybe.

[Stringent]

A 2% or 2.5% cut isn't really a lot. Besides I bet they won't alter the difference in price, the companies will make that as a profit. We are used to getting messed up in the country remember?

[kalniel]

A 2% or 2.5% cut isn't really a lot. Besides I bet they won't alter the difference in price, the companies will make that as a profit. We are used to getting messed up in the country remember?

If it's not a lot, why do people complain so loudly at a 2p increase in fuel duty? This is going to be almost exactly the same amount off (or more), and it doesn't just apply to fuel, but to nearly all goods we buy.

If govt had labelled it instead '2p off fuel and 2.5p in the pound off all other goods' do you think the reaction would be better?

[Stewart]

I was thinking about it earlier, and came to the following conclusion - no.

My reasoning was the same point that Andrew Neil just made on the Daily Politics - walk down the street and you see shops with 25, 50, even 70% off, so a few extra % isn't going to make much difference.

You don't buy things you don't really need when you are skint, and a few quid off isn't going to turn us into big spenders.

[MadduckUK]

has this happened yet? iv got a m-itx server thats calling my name

[0iD]

Labour will drop VAT to 15%, still lose the election.

The Tories will get in, have no option but to raise VAT again & then labour will tell us how bad the Tories are for over taxing us, how rubbish the economy is under a Conservative Gov't & get back into power at the next election.

All down to the way they shafted us when they were in power.

[AledJ]

My temporary job only pays me £6 an hour so most of my salary goes into a high interest savings account. A cut in VAT will do nothing for me!!! Would have liked to see a cut in income tax (not seen the budget yet, maybe there is some cut) Would be nice to have a cut in the tax put on petrol/diesel.

[Funkstar]

Would be nice to have a cut in the tax put on petrol/diesel.

What, like the 2.5% reduction in the VAT on petrol?

[AledJ]

What, like the 2.5% reduction in the VAT on petrol?

Anything lol From what has been in the news about tax cuts, nothing will help me out!

[shaithis]

Even with all VAT removed, a lot of hardware prices will still be higher then they were before the pound crashed.

[AledJ]

But don't get too happy with the VAT cut as the Government will put taxes up to grab it all back. Give with one hand take with another- New Labour's new motto (or has that always been their motto?)

And can the Government stop talking about families!!!!! There are single people who need help grgrgrg


/and breathe!!

[G4Z]

I don't know... /usual high quality post

I thought the government did just print money by loaning it from the bank of England using a fractional reserve banking system?

http://en.wikipedia.org/wiki/Fractional_reserve

The BoE just poof's it up out of thin air and it devalues the currency, isn't that why inflation is going so high?