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Balls: Govt should cut VAT to boost spending

Shadow Chancellor Ed Balls has accused the Government of choking off economic recovery and is calling for VAT to be cut temporarily to boost spending.

His comments come as figures from the Office of National Statistics, released today, show the economy grew by 0.2 per cent in Q2 of 2011. The economy shrank by -0.5 per cent in Q4 of last year and in Q1 of this year it grew by 0.5 per cent.

Chancellor George Osborne hailed the figures as “positive news” labelling the UK a “safe haven” in a time of international instability. Balls says Osborne’s comments show “breathtaking complacency”, accusing him of being in “total denial” about what the figures mean.

He says: “These figures show that last year’s recovery has been recklessly choked off by George Osborne’s VAT rise and spending review. The economy has effectively flat-lined for nine months and this is very bad news for jobs, living standards business investment and for getting the deficit down.

“Temporarily reversing the VAT rise which is costing families with children £450 per year would give our stalled economy the jump start it urgently needs and so help get the deficit down in the long term.”

VAT rose from 17.5 per cent to 20 per cent in January after Chancellor George Osborne announced the move in the Government’s emergency budget last June.

Balls says the cumulative growth of 0.2 per cent over the past nine months compares with 2.1 per cent in the previous nine months, adding the UK economy has “barely grown” despite the continued growth of other major economies which are also dealing with challenges like high oil prices.

In March’s Economic and Fiscal Outlook the Office of Budget Responsibility revised down its November growth estimate for 2011 from 2.1 per cent to 1.7 per cent.

Balls says: “It is now increasingly clear we need a more balanced deficit plan that puts jobs and growth first. We need a plan for the long-term future of our country which recognises you cannot get the deficit down in a sustainable way without strong growth and more people in work.”

Osborne says: “Our economy is stable at this time because the Government has taken the difficult decisions to get to grips with Britain’s debts. Abandoning that now, as some argue we should, would only risk British jobs and growth.”


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Charles Rickards 26th July 2011 at 12:51 pm

    The man talks his name! When VAT was reduced by the last government it did nothing to stimulate the economy. People are spending less because they have less to spend due to the increase cost of Gas, Electricity and other fuels, which are VAT rated at 5%. Food prices have increase and most of that is zero rated. If Balls has got any good ideas, then let him speak, if not, he should be very quiet, so we don’t notice him!

  2. Simon Mansell Open Letter 26th July 2011 at 3:02 pm

    Dear Mr Balls


    As Shadow Chancellor you have today accused the Government of choking off economic recovery and you are calling for VAT to be cut temporarily to boost spending.

    In its report on the Retail Distribution Review, the Treasury Select Committee says HMRC should set out how VAT will apply and what additional revenues it expects to generate.

    Mr Ball’s can you state clearly whether the Labour party believes that consumers should pay VAT on customer agreed remuneration post RDR, in those cases where prior to RDR none was otherwise paid?



  3. Cut VAT back to 17.5% for a few months and everything will be rosey again.


  4. As we are running a current account deficit of around 10% of GDP, about the same as Portugal and Greece, reducing VAT would directly increase the deficit, and hence would have to be financed by further borrowing. This is just borrowing growth forward, not real growth.

    If any spending were generated by such a move, much of it would be on imported goods (we have a current account deficit of around £40 bn pa) and so in any case GDP impact in the UK would be marginal.

    Mr Balls’s deficit economics was given a prolonged run from 2000 to 20010, and failed dismally. It is time now to put our finances in order, or we could very soon finish up in a Greek tragedy.

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