Quote ="sally cinnamon"Which is why the government needs to start spending more in the economy to stimulate demand.
Osborne keeps saying his austerity plan has restored confidence on the markets, but what confidence is this? UK government bonds have low interest rates but thats a consequence of expectations of long term low interest rates from the B of E as much as confidence that we won't default, rates were never high anyway even when Labour were in power.
The 'market' has no confidence in the economy hence the private sector banks don't want to lend. They had all this supposed evidence that austerity can be expansionary because by cutting the size of the state it releases resources to the private sector so the private sector will grow, but it wasn't an issue of fighting over resources anyway because there are large numbers of unemployed workers and large amounts of investment funds being unused.
There are four components of demand, consumer spending, business investment, government spending and net exports. Most of our main trade partners are in a worse state or as bad a state as us so we can't expect huge amounts of exports any time soon, so if we're committed to cutting government spending we are relying on consumer spending and business investment - and where is this going to come from....?
The big joke is the government even rejects the tax cutting argument. If you want to stimulate demand then cut VAT and you get a direct effect on spending, because people only benefit from a VAT cut by spending. It's not like an income tax cut where people will save some of the benefit so it doesn't contribute to demand. But the Tories for some reason seem totally disinterested in this tax cut, the tax cuts they want is tax cuts for the top earners, which have the lowest effect on contributing to demand. The IMF has suggested the UK needs to look at VAT cuts as a stimulus but Osborne won't have it.'"
The Tories have never cut vat. They introduced it as part of the EU package at 10%. When Labour left office in 1979 it stood at 8% The first Tory budget put it up to 15% (they'd denied they'd double it in the campaign and they didn't
) They then increased it to 17.5% in 1990, where it stayed until the temporary cut in 2009. This cut was decried as useless by the Tories and Lib/Dems but IMO did more to stimulate growth than any other measure Labour took in that period. Almost the first thing Osbourne proposed was a VAT increase to 20%, The result is what we've now got.
The Tories believe in low taxes - but low income taxes which benefits the better off more than low VAT benefits them. It seems to me that it's an ideological thing with them. But the time for ideology is rapidly running out. Time for some pragmatism. We're up s h i t creek time to look for the paddle.
) They then increased it to 17.5% in 1990, where it stayed until the temporary cut in 2009. This cut was decried as useless by the Tories and Lib/Dems but IMO did more to stimulate growth than any other measure Labour took in that period. Almost the first thing Osbourne proposed was a VAT increase to 20%, The result is what we've now got.
