Vir Cantium

I'm right, you know …

Back to 3/23rds?

The risk of this blog becoming a weekly affair is, I suspect, receding with the pre-budget report being delivered tomorrow.

Someone at the Treasury is clearly briefing the media and trailing a VAT cut from 17.5% to 15% – reversing a rise originally put in place to pay for the abolition of the poll tax and introduction of the Council Tax.

Frankly I would have thought making permanent this year’s rise in the personal allowance would be cheaper and just as effective in economic terms – more so, probably, as a VAT cut will undoubtedly be “shared” between suppliers and customers. However, an increase in personal allowances is not as effective a headline grabber, which is what this is all really about. Labour clearly want to goad the Conservatives into not supporting a tax cut, but in doing so they have failed to understand what Conservatives are all about when it comes to tax. We would cut tax by making government smaller – tax is, after all, the most visible measure of the size of government. Anything else is unsustainable. Unfunded tax cuts are no tax cuts.

One other idea being floated in the last few days is a Council Tax freeze. This is unworkable as the increase in government funding necessary would be too complex, as the rises necessary would be different for every single council. More likely, if we are talking a freeze, would be to use the capping powers to force a 0% increase – or, to be more precise, forcing councils to carry out rushed and thus damaging cuts in services – and those councils, mainly now Conservative, would know exactly who to blame.

BTW, the reference to 3/23rds is one that accountants of a certain vintage will instantly recognise: 3/23 is the fraction of VAT in a price that includes 15% VAT (i.e. £100 plus 15% VAT equals £115 … £115 x 3/23 equals £15 VAT). With 17.5% VAT the current fraction is 7/47.

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