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The UK Economy Could be ‘jump-started’ by a Tax Cut

Posted on | August 15, 2011 | Comments Off on The UK Economy Could be ‘jump-started’ by a Tax Cut

Back in June, Ed Balls – Labour’s Shadow Chancellor – called for a temporary ’emergency’ tax cut in an attempt to ‘jump-start’ the economy and reverse the slump in consumer confidence since the recession began, the BBC reported.

Describing Labour’s economic policy in a major speech, Mr Balls said that acting immediately to encourage consumer spending and boost the economy would be preferable to just “hoping for the best”.

Mr Balls’ suggestion followed the previous Labour government’s temporary VAT cut back in 2008, when they reduced it to 15% (from 17.5%) in an effort to stimulate a flagging high street by increasing consumer spending.

VAT is a tax that applies to most goods and services provided in the UK.

This proposed move by Labour followed figures released in May that showed UK retail sales fell sharply by 1.4%, showing a significant fall after the previous month’s 1.1% increase.

Following Mr Balls’ speech, George Osborne, the Conservative Chancellor, said that he didn’t have any plans to see the rate of VAT lowered again – making it clear that the increase to 20% should be considered as a “structural” change to the country’s tax system.

You can find the source here if you’d like some further background information.

More recently, David Hanson, Labour’s Shadow Treasury Minister, criticised Conservative plans to reinstate tax relief on private medical insurance for the over-65s and change transferable tax allowances.

Mr Hanson commented: “Instead of unfair tax cuts for a few, we need a temporary emergency VAT cut for everyone until the economy starts growing strongly again. This would be a much-needed boost to all people on low and middle incomes, not just a few. It would boost confidence and get the stalled economy moving again and so help get the deficit down for the long term.”

The BBC has reported that growth in the UK economy slowed in the three months leading up to the 30th June.

Gross Domestic Product (GDP) grew by 0.2% in the second quarter, according to the Office for National Statistics (ONS) – a smaller increase than the 0.5% in the previous quarter. The ONS partly blamed slower growth on factors such as the extra April bank holiday and the Japanese tsunami.

Mr Osborne welcomed the growth as good news. He commented: “The positive news is that the British economy is continuing to grow and is creating jobs. And it is positive news too that at a time of real international instability we are a safe haven in the storm.”

However, Mr Balls said that the slowdown was a ‘serious problem’, and urged the Government to boost growth. He said: “These figures show that last year’s recovery has been recklessly choked off by George Osborne’s VAT rise and spending review.”


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