David Cameron: The only certainty about a VAT cut is that it'll add £12bn to the national debt

Key messages from David Cameron's interview on Andrew Marr's Sunday morning programme (not verbatim):

It is not true that the Conservatives are inactive in the face of recession: We are proposing a two year freeze in council tax, a VAT holiday for all small businesses, a 1% NI cut for very small businesses and a £2.6bn aggressive incentive to encourage businesses to recruit the unemployed.

Government borrowing is massive: People will be shocked when they see that borrowing is going to be £80bn to £100bn.  Labour's borrowing bombshell will become a tax bombshell.

Brown's stimulus may not work: As the Chairman of the European Central Bank warned, the stimulus may not work at all if people know that tax rises are going to quickly follow temporary tax cuts.

Labour's likely VAT cut: The Conservative Party will make a decision on how to respond when we've seen the detail of what the Government proposes but the only uncertainty about a VAT cut is that we'll add £12bn to the national debt.

The Tories are telling the truth: Unlike Labour there's no blather. We are telling the British people the truth and you can't borrow yourself out of a borrowing crisis. We are telling the people the truth that we can't carry on with Labour's spending plans.

This is a monetary crisis needing a monetary response: Interest rates need to be cut further and government action on fiscal policy must not endanger the Bank of England's freedom to reduce those rates.

Bank lending to business: It's no good shouting at the banks. There's a complacency from Peter Mandelson and the Government on this issue.  The Conservatives are open to offering insurance for new loans from banks to businesses.

George Osborne is a very good Shadow Chancellor: And he'll make a very good Chancellor.  I meet a wide range of people.  I've met all former Tory Chancellors.  They all tell me the same thing; that Britain is over-borrowed.

At the end of the programme David Cameron joined Peter Mandelson on the sofa and offered to put Eric Pickles on Strictly Come Dancing if the Prime Minister allows Lord Mandelson to appear.

Comments

[David Belchamber]

A few reactions to DC's remarks on Marr:

"Government borrowing is massive"
Why does he not hammer home with every opportunity how big this is and raise the point about off-balance sheet borrowing, otherwise Brown will continue to get away with the claim that borrowing is far lower now than when Labour came in?

"The Tories are telling the truth"
A few concrete examples of Labour untruths would be helpful; there are plenty to choose from, as they continue to utter their pet mantras unchallenged.

"Bank lending to business"
I know GO suggested something similar in a rather tentative fashion the other day but what about considering the idea that the People's Bank (Northern Rock) might buy at commercial rates from the high street banks all their toxic debts. The taxpayer is going to have a huge bill to pay over the coming years, so why not concentrate all the toxic debt in one place. Some of the money will come back in, much will have to be written off but over the years.
The other side of this coin would be a firn agreement from any bank signing up to this deal that the money earned is working capital to be lent to businesses and by way of mortages.

"George Osborne is a very good Shadow Chancellor":

"by their works ye shall know them!".

Finally, I would pledge to return responsibility for the oversight of the banking sector to the BoE and point out that Norther Rock (which was part of "Brown's Boom and Bust") might not have occurred, if that had been the case.

[Mike]

Osborne's response to this tomorrow ought to be :-

1 How will this help people meet their debt obligations? After all debt default has been the cause of this crisis.

2 How will these short-term measures help either businesses or families plan for the future? If they know they are going to be reversed they will hunker down even more.

3 If this stimulus package doesn't work then what is the backup plan?

[NigelC]

With a reduction in VAT people will not get money in their pockets to pay off their credit card debts or mortgage.

You only save if you spend. More debt-fuelled growth! I know that is what the stimulus is meant to do but will it work...

A decrease in VAT requires shops to pass on the reduction. Will they do so or try and shore up their margins?

With the prices of imported goods rising as the pound falls will consumers notice a 2.5% reduction in VAT? Note Sony indicated it will be puttng up prices in Saturday Telegraph.

With the shops having 20% off days will 2.5% be noticed?

There is no VAT on basics such as food and childrens clothes; the poor and those on benefits trying to eke out an existence will not benefit

[IMC]

Watch out for Gershon II in the PBR, with another dodgy 'government efficiency drive' to try and give the impression the fiscal stimulus can be "funded" with "efficiency" gains in future, protecting pledges for unaffordable spending plans.

Last time this was done, while there were some real cash savings such as those from better procurement, which have no arguably been exhauated within the constraints of the current government's willingness to be tough enough to go further, it also included £8 billion of "non cash savings". Unsure what this apparent contradiction in terms means? Well, if you take some managers in a strategic health authority and say they can answer calls to NHS direct when the phones in the call centre get busy, miraculously they move from the back office to the frontline, and their employment cost is a non cash saving. Similar slights of hand became an industry in metrics to demonstrate these 'savings' while all along, the total amount of spending rose inexorably.

Gordon loved this subterfuge once before; look out for it or a form of it, tomorrow!

[Another Richard]

Altering VAT also adds to business costs as IT systems need to be changed.

[David Sergeant]

It still seems to me that punches are being pulled. Brown inherited one of the best economies in the world and, by comparison to other countries, we are the worst placed in the developed world with, apparantly, the exception of Hungary. I suggest that makes him the second most incompetent Finance Minister of the developed world.

"This is no time for a failed incompetent?"

Another point, we are ocasionally told that Cameron/Osborne were very instrumental in Gordon's bank bailout. Why are we not told what happened - frequently.

I could go on but isn't this really a reverse of Black Wednesday? The 1992 problems were caused by Germany (I know that because the German Finance Minister publically apologized to the world) and the Major decision to pull out of the ERM was the turning point in a massive improvement in the British economy. (We wern't kicked out, I know that because all the other EU Finance Ministers ganged up on Lamont because he didn't use all the other options available.) So why does Brown get a bounce at his Black Wednesday when the opposite happened to Major? The answer is that Labour Ministers and MPs all get going talking the party lines - however silly. In 1992, however, nobody, not even to-day, tries to support the Major/Lamont decision. This isn't a question of right or wrong, or even competence, it's a question of fighting your corner and all your side fighting with you.

[Steve Tierney]

David Sergeant said:-
>>Another point, we are ocasionally told that Cameron/Osborne were very instrumental in Gordon's bank bailout. Why are we not told what happened - frequently.<<

If Cameron or Osborne had anything to do with the bank bailout now is NOT the time to be trying to get some credit for it. Presuming that the bank bailout worked is a mistake. Its MUCH too early to do so. There could still be bank problems to come. Big ones.

In order for debt-fuelled growth to work in pulling us through a recession, there needs to be some place down the line where real value is added to the economy. Otherwise we just end up right back here again, but with bigger numbers.

I can't presently see anywhere that the necessary growth is going to happen. Which means that we are sitting on a very scary precipice and the rocks are crumbling around us. Gordon Brown wants us to just jump, and hope somebody has put a big cushion at the bottom. We seem to be pursuing the idea that we can lose weight and make it less likely the rocks will give way. Nobody has proposed any way of backing up from the edge to a safer place.

[anne allan]

Please could some mega-brain explain to me if the £100 billion includes the dreaded PFI's?
Will there be any point in my grandchildren ever getting a job or will the Broon Tendency swipe all their earnings?

[Patsy Sergeant]

I was curious that Mandelson still appears to be 'waiting' to be invited to take part in Strictly Come Dancing, because it bothered me when he first mentioned it - quite seriously - as to who he would expect to 'tutor' him. He strikes me as someone who might be fairly embarrassed by someone like the scantily clad Russian dolly that accompanies John Sergeant - to HIS obvious delight!

[Eveleigh Moore-Dutton]

The Tory measures are the right ones as they concentrate on supporting small businesses in keeping their employees in work. Boosting the spending power by a very small margin (possibly even unnoticeable)by reducing the V.A.T. rate is welcome but is really going to boost consumer spending, largely on imported goods.

The fall in the value of the pound and therefore in its buying power will more than offset the reduction in V.A.T. because it will take more pounds to pay for the imported goods anyway.

[m dowding]

Patsy Sergeant | November 23, 2008 at 15:03

I suspect this is a ploy to introduce a more balanced coupling of dancers. Thus the programme will be re-named "Srictly PC"!

[m dowding]

http://theorangepartyblog.blogspot.com/2008/11/browns-arrogant-party-politics.html

A left wing blog I found illuminating and proves my argument on political direction. Take a clockwise move from the base of a circle to the left, an anti-clockwise move to the right and you get fascism.
Now, invert the circle, i.e start from the top or apex, or place a new circle below. Left and right meet in concensus of "If it is right for my neighbour it is good for me!"
It is also then rather Christian or non-radical Muslim. A mono-religion for politics.
Well, it is Sunday!

[Patriot]

This dressing up of the 2.5% VAT reduction is pure smoke and mirrors to cover the fact that Brown is about to have to dramatically raise borrowing - designed to dress the extra borrowing up as being "in the best interests of hard working families to help them through these difficult times"

Think about it. Sales are about to fall off a cliff, which means that VAT receipts are going to plummet anyway - the reduction in rate from 17.5 to 15% is meaningless and insignificant against this huge black hole in receipts which is about to open up.

Similarly Brown is going to announce NOT increasing Car Tax as a tax reduction to help us all, and his paying back of the tax taken when he doubled the 10p rate will be dressed up as a tax reduction.

Now, who could be behind spin of this magnitude?

We are in deep, deep trouble.

[Legman]

Aren't vat receipts paid over to EU after deducting a handling fee such that the punters gain is the EU's loss?

[The Bishop Swine]

"Altering VAT also adds to business costs as IT systems need to be changed."

Not only that but very small and new business's collect Vat but get to keep it. This will be a bad move tax cut for those very small business's that are already on the very edge of going under.

[Peter Berrow]

I think Digby-Jones comment that he couldn't understand why the Government could only cut VAT by 2.5%, shows that the guy has zero skills in terms of understanding of the restrictions placed on this Country by the European Union in terms of VAT. Only good reason for having Mandy in his job instead?