George Osborne: Opposing the VAT cut was my toughest call

Speaking to Conservative activists in Wales, George Osborne has said that his decision to oppose Alistair Darling's VAT cut was the toughest call of his time as Shadow Chancellor.  On the right is the extraordinary poster that M&S had in all their stores just before Christmas, celebrating the cut.  Note the 'Thanks Darling' sign off.

That decision proves, Mr Osborne says, that he and David Cameron have the "courage and the judgement and conviction to make the difficult choices and put this country’s finances back on the right path."

Key extract:

"Let’s be honest – opposing the VAT cut was the toughest call I’ve had to make in this job – leading Conservative MPs, with the support of David Cameron, into the division lobbies against what looked to many like a Labour tax cut.

It wasn’t the easy or popular thing to do either.  Almost no one openly agreed with us.  We could have stayed quiet, and turned a blind eye as the debts our children will face mounted up.

But we didn’t.  David Cameron didn’t.  I didn’t.  This Party didn’t.

We stood alone then.  But we are not alone today.

One retailer after another queues up to denounce the VAT measure.  One Labour MP after another calls on their government to abandon it early.  And one European finance minister after another makes it clear that it wasn’t a very sensible thing to do.

But we were there first.

And I think in that decision we showed that this Party has the courage and the judgement and conviction to make the difficult choices and put this country’s finances back on the right path."

Earlier this week the Conservatives declared victory in the battle of the fiscal stimulus.

Comments

[joshuwahwah]

Oh come on George. You oppose the VAT cut the helped and is still helping hard presses families. But you want to raise IHT to 1million and help out the 3000 richest land owners in the land. Surely that is not fair.

And as for claiming the battle in the fiscal stimulus. How? the budgest isn't until next month. We will see then what happens. A little birdy tells me that basic tax threshold is to rise to 9 or 10k

[Mike]

joshuwahwah, the VAT cut was an extremely pointless waste of money and everyone (apart from you apparently) can see it.

The money would have been better spent in direct tax cuts.

Let me ask you, which is the better stimulus - making things marginally cheaper in the shops when the retailers are slashing prices anyway or giving people fatter pay packets?

[David_at_Home]

"A little birdy tells me that basic tax threshold is to rise to 9 or 10k"

This has been UKIP policy since 2006!

http://www.ukip.org/content/ukip-policies/32-uk-independence-party-flat-rate-tax-policy--september-2006

[pp]

Its still fiddling around the edges.

Political thinking on tax is still based on how much the government think they can possibly get away with taking, rather than how much is needed to cover genuinely required spending.

[James]

Good George. I believe he would be a great chancellor. He has a powerful mind and all those criticising him will one day be proved wrong

[JGS]

joshuwahwah says: "A little birdy tells me that basic tax threshold is to rise to 9 or 10k"

Blogs are full of self-important pronouncements of this sort. How does he know? Are we meant to be impressed by this insider knowledge?

[ToryBlog.com - The usual health warning about me to keep the Editor happy :-)]

What is brave about opposing the lunatic policies of this Government?

I suppose there has been so little of it from the roons, that they have indeed sweated and stressed over opposing policies that the average man in the street would happily shrug and tell you how rubbish they are.

Hannan and Carswell publish a blueprint to rebuild Britain. Osborne in contrast
sweats over breaking from the political class consensus.

Who has the real vision for Britain?

[Peter Harrison]

Joshuwahwah - oh dear. The IHT cut will help anyone who has a house worth more than £320k. That's a lot more than just the 3000 richest landowners.

And if the basic tax threshold is raised to the level you claim, there will have to be huge cuts in government spending or bing increases in tax rates. The government is already borrowing at unsustainable levels. It can't cut taxes unless it also cuts spending.

I know I'm wasting my breath trying to explain basic economics but...

[Phyllis Crash]

It was a big judgment call by George but much bigger and harder ones lie ahead.

[Phyllis Crash]

PS How were M&S allowed to get away with that Thanks Darling?

[Tom FD]

Note that shortly after Christmas M&S laid off hundreds of staff...

[Malcolm Dunn]

I don't think George deserves particular kudos for opposing the VAT cut. It was never a popular move and many leading commentators criticised it from day 1.
What will take real cojones will be if George sets out where he will make spending reductions. The necessary reductions will majke the left scream, they probably won't be popular amongst Tories either. But they are necessary.

[michael mcgough]

I don't think courage is an appropriate word to use for this particular political stance.What would have happened had he not oppsed the cut ---zilch.
Now tackling the bloated state sector will take courage and so if Gideon thinks this was a tough call I am not optimistic that he has what it takes to deliver what is necessary.

[Ross Warren]

I am glad that George had the guts to oppose the vat cut. It was always a stupid ill thought out policy from Brown. Of course things are getting worse at the moment with yet another Building Society effectively insolvent. Seems that Scotland's institutions are feeling the brunt of the recession right now. A good time for independence?

George could make a few conversions if he was willing to stand up to the power companies who are still dragging their feet in reducing the cost of gas and most importantly electricity. Nat Power has yet to cut a single cent despite the much reduced cost of Gas and Oil. Here is an issue that could pay dividends of support if George is willing to go after the utility companies.I say this because G.O. was making the right noises a while ago, its now time to get angry George!

[Robert Crozier]

The VAT cut makes absolutely no difference at a time when many of the larger retailers are making 20, 30 ,40...% cuts in prices. The latter level of price cut made a difference to shoppers buying habits not the former. Therefore it did not have the desired effect of "extra" spending relative to the larger cuts. This £12.5 billion should have been either not spent or at the very most invested in R&D of new pragmatic technology, stuff that makes a meaningful difference. At least we would have new jobs and leading edge tech to help us recover. The VAT cut has been swallowed up by higher prices now (CPI up to 3.2%) and when it lapses this will give the retailers a chance to put prices up to the nearest XXX9.99 and blame the government at the time. Thanks Crash!

[David Belchamber]

It would perhaps have been braver if George Osborne had said what he would have done - at that stage - instead.

I just wish that he and the conservatives would now hammer Gordon Brown's false facts e.g.

On public sector debt, Bill Cash in a letter to the Telegraph today says that the ONS gives an estimate of £2.2 trillion, double the government's own figure in the PBR of only three months ago.

More tellingly he adds: "Even these figures exclude financial obligations such as public pensions and PFI. These would take the total to £3 trillion, more than 200 per cent of GDP".

He ends with the point I often try to make: "Unless the government comes clean with the truth, there is no basis for a rational policy".

Could George Osborne please establish the correct figures for government debt and unemployment and only use these figures henceforth, so the electorate can see just how dire the situation is after 12 years of Labour?

[John Broughton]

Having been in he hall when GO made this statement I just wanted to tell him I called it within a minute of the announcement!

Still I'm glad he agreed.

[Steve Tierney]

Joshuwahwah:-
>>"A little birdy tells me that basic tax threshold is to rise to 9 or 10k"<<

Good. That's a fair thing to do. My question though is Could We Afford It Now? If Gordon hadn't blown all this money on one silly scheme after another, maybe we could. In which case, I'd applaud the prime minister (which would feel really weird.)

Trouble is, we can't afford it. So if he does it then its got to come from increased taxation elsewhere, borrowed money, or printed money, or cuts.

Now let's be honest Joshuawahwah, it ain't gonna come from cuts because Gordon is more scared of that word than the word "sorry."

If it comes from increased taxation I guess it'll be the rich who they try to get to pay. Good luck with that. There are a lot of highly paid accountants who might think otherwise.

If it comes from borrowed money then first you've got to raise it with gilts (not as easy as he thought, that) in which case its more money for our kids' kids' kids to pay. Well done. Your party want to rob from the grave AND the womb. Talk about taxing the candle at both ends.

Of course there's always the printing press to fall back on. More false economy, devalue everyone's money with your monopoly currency, then give it back and claim its a gift. Kinda like an evil version of Santa Claus who steals the children's toys then repackages them and gives them back... broken.

Joshuwahwah, you chose the right name. It sounds like a load of bleating and whining, which is mostly what Labour do. Unfortunately, they also have a penchant for theft and deception. It's not a pretty combination.

[another richard]

Anyone with any knowledge of business or economics knew that the VAT cut would be a total failure and so it has been proved.

Does Osborne want congratulations or something?

The next government will have to make some real decisions.

[Conservative Homer]

VAT is an immoral and regressive tax, and one of the darker sides of Thatcherite tax policy.

Osbournes opposition to cutting it says a lot about him.

[Milly]

That "Thanks, Darling" poster is STILL up in various branches of M&S - the one at St Pancras station being the first that comes to mind.

And this is a chain that put prices back up to pre-VAT cut levels within weeks - I've got receipts to prove it. A disgrace.

[Paul Hernon]

Tax experts from each of the top accountancy firms in the country have all said the VAT cut helped the economy.

In some cases it did encourage spending, in other cases (in businesses that did not pass it on) it added to the bottom line saving thousands of pounds for businesses in trouble.

It's amazing to hear Tories criticise a tax cut because it was oversold while they ignore its benefits to the cashflow of hundreds of thousands of businesses.

[Graeme Pirie]

God help us if he thinks that was brave!

Little hope for him being able to what's necessary to fix the country then...

[Paul Biggs]

Osborne was right to oppose the much hyped VAT cut - it is only temporary and may result in a higher VAT rate in future. The cut cost the legal accounts software company my wife works for many thousands of pounds due to having to alter the software for all their clients. When the VAT rate is put back up, they will have to go through the expensive, time consuming process all over again. 2.5% is irrelevant to consumers at a time when they need to cut spending.

Fuel tax was also increased to compensate for the VAT cut - how silly is that when fuel tax affects the cost of travel and transport of goods, and ultimately the cost of goods in the shops?