It is very clear that the government cannot carry on borrowing at current rates and the coalition’s proposals for reducing government borrowing are prudent. However, today’s VAT rise is unnecessary.

As has been said before, we did not get into this situation because the government taxes us too little. Ever since Gordon Brown abandoned his self-imposed restraint in 2000, government spending, financed mainly by stealth taxes and increased borrowing, has expanded rapidly to its current level of over 50 percent of national income. As such the whole of the balance of fiscal adjustment should come through spending cuts.

Read the rest of the article on the Spectator Coffee House blog.

Philip Booth 154x154
Philip Booth is Academic and Research Director at the Institute of Economic Affairs and Professor of Finance, Public Policy and Ethics at St. Mary's University, Twickenham. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. Previously, Philip Booth worked for the Bank of England as an advisor on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs and on the editorial boards of various other academic journals. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

3 thoughts on “There is no reason to raise VAT”

  1. Posted 05/01/2011 at 17:48 | Permalink

    I agree that cuts are necessary in order to bring down the deficit. But how can anyone advocating cutting the winter fuel allowance sleep at night knowing that pensioners will die as a result of such a move?

  2. Posted 06/01/2011 at 13:13 | Permalink

    The winter fuel allowance is not an allowance for winter fuel. It is a flat payment paid regardless of how poor a household is, how much fuel is consumed and how cold it is. There are separate payments for poor households in extreme cold weather. Abolishing the payment will reduce pensioners’ incomes but then their incomes are set to grow in real terms whilst workers’ real incomes are shrinking. Also, what is the sense in raising taxes in order to see that money passed to another bureaucrat and handed back as a benefit? Everybody living at the expense of everybody else as Bastiat put it.

  3. Posted 25/11/2011 at 08:58 | Permalink

    Italian government raised VAT to 21%. Here the problem: why not considering the theory of social network of Strogatz as mathematical reason against this provision? The theory forecasts that an attack (fiscal in this case) against the hubs (enterprises and businessman) of a social network (economy network) can make the network collapse.

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