Tax and Fiscal Policy

VAT rise is bad economics, further spending cuts are needed to get deficit down

Prof Philip Booth comments on the VAT rise

Responding to today’s rise in VAT, Prof Philip Booth, Editorial and Programme Director at the IEA, said that the move is the result of insufficient attention being paid to spending cuts.

He said:

“Today’s VAT rise is simply bad economics and important potential spending savings have been avoided for transparently political reasons.

“Government spending, despite the Chancellor’s proposed savings, needs to be cut further. We did not get ourselves into the current situation because taxes were too low but because government spending rose out of control. Ring-fencing the NHS budget whilst simultaneously increasing the foreign aid budget, for example, are simply indicative of politically-motivated profligacy and not good economics. Furthermore, proposed increases in pensions above the rate of inflation and the retention of quirks such as free bus travel and the winter fuel allowance cannot be justified given that they have led to the necessity to increase VAT.

“If the government insists on increasing taxes, there are better candidates than a general VAT rise. However, today’s news should be a wake-up call that the spending cuts are insufficient. If the government wishes to prevent growth from stalling, it will cut spending further, not burden the population with an unnecessary tax rise.”

Notes to Editors

To arrange an interview with Prof Philip Booth, IEA Editorial and Programme Director, or Dr Richard Wellings, IEA Deputy Editorial Director, please contact Stephanie Lis, Communications Manager, 077 5171 7781, 020 7799 8900, [email protected].

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.