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Eliminating the VAT until December 31 would stimulate the UK economy so much that by 2021 the economic hit from COVID-19 would be completely reversed.
Prior to July 08, 2020 the VAT in the United Kingdom was 20% on most items. However, the government sought to stimulate spending in the tourism sector by lowering their VAT to 15% on most items and admissions. Which was a bit underwhelming. To say the least.
I understand that the present UK government is Conservative-led and that caution rules their thinking, but a 5% cut to the VAT is nothing. They might as well not bother as it’s likely to have little effect.
Yes, they’re concerned about driving up the deficit in a (perhaps) uncertain economy. But let’s not feed that uncertainty by underwhelming the credit rating agencies!
Uncertain times call for CERTAINTY, not TINKERING with the economy.
Even Canada, a Country of 38-Million People Saw Fit to Run a $256 Billion Deficit to Assist Canadians
By contrast, the UK government which leads a country of 67-million people has cringed at running a deficit of £361.5 billion. That’s too little, too late, I’m afraid.
To run with Canada and other Western nations in the post-COVID economic recovery period, the UK must do better than that!
Basic arithmetic will tell you that to meet Canada’s level of committent to its citizens, the UK with 67-million people would need to spend £451 billion in 2020.
That’s real money, delivered into the hands of Britons and British businesses to be spent in the UK economy to restart the UK economy.
Really, at this point, there’s nothing more important than restarting the UK economy; Debt-to-GDP and the present deficit are unimportant next to restarting the economy.
Rishi Sunak — nice person that he is — has listened to too many Conservative MP’s and not enough to economists, citizens, and the UK business community.
Normally, it would be a fine thing that a Chancellor of the Exchequer would pay such close attention to MP’s, as it signifies that the Chancellor is a good listener, but now is not the time to listen to overly-cautious (non-economist) Parliamentarians… now is the time to act boldly!
Regular Readers Know I Complain about Deficit Spending
But I only complain because, historically speaking (some) governments were just too lazy to oversee every pound spent in the economy and thereby engaged in deficit spending even when the economy was rocketing along with a high annual growth rate. And folks, there’s no excuse for that. It’s lazy bookkeeping and governments should be tossed from power whenever they fall below that level of fiscal responsibility.
The reason we need to be prudent with our spending during the boom times is so that we have some economic room to manoeuvre when things hit the fan, as they invariably do from time to time. Such as during Coronavirus, such as during the US subprime mortgage crisis, during times of high unemployment, or times of labour strife. And that’s the whole point of this blog post.
Governments need to be fiscally responsible during the boom times so there’s money to deal with things like Coronavirus.
Former Chancellor George Osborne was exceptionally prudent during a time of crisis (and unfairly) wasn’t able to retain his position long enough to enjoy the good times when they returned. He surely would’ve made the best of it — but was on the wrong side of Brexit — very unfortunately for him, and for the UK.
And unfortunately for Rishi Sunak — who is an easy person to like — he’s trying to please Conservative party stalwarts instead of trying to goose the economy to the same level as the UK’s competitor nations. And while we all like Rishi, that doesn’t work for him.
Please, Mr. Chancellor, put the UK’s stimulus spending to the same per capita footing as other Western economies to allow the UK to rocket out of the economic doldrums like an F-35 taking off from the deck of the HMS Prince of Wales… So important!
The Easiest Way to Stimulate the Economy…
Is by ‘topping-up’ the income of every adult British citizen in the UK to £1250 per month via a reverse income tax — thereby instantly replacing every other (overlapping and prohibitively expensive to administer) anti-poverty programme that poverty-stricken people receive assistance from in the UK, and that ‘top-up’ should also include any senior citizen who lives under the official poverty line in the UK.
For those earning over (approx) £20,000/yr. those people wouldn’t receive money from such a programme.
But for those living under the official poverty line amount, their income should be topped-up to £1250 per month in one payment from HMRC. And every pound sterling of that money will be spent in the local economy allowing that person to live and be ready to work when the economy improves, meaning 100% of that stimulus money will be spent in the economy.
Which is quite unlike when the government hands billions to corporations, where 50% of that stimulus goes straight to shareholders, many of whom may not live in the UK, spend money in the UK, nor retire in the UK. Therefore, half of any (corporate) stimulus money the government hands to corporations flies out of the UK never to be seen again. And that should be illegal. Certainly, if taxpayers knew the extent of this since 1950 there’d be a civil war.
But my plea to the UK’s excellent Chancellor isn’t about plugging that particular loophole (yet) it’s about spending another £100 billion in the economy to better compete with other economies so the UK doesn’t get left behind in 2021 — and putting real money in the hands of Britons who will spend 100% of that money in local UK economies, instead of the government helping to make foreign shareholder returns more generous.
With the greatest respect, Mr. Sunak, it’s over to you!