Regional VAT, an idea for Ed Balls

April 22, 2013

When I was in Arizona, I kept getting overcharged in the shops. At least I thought I was, until I objected and was told that the extra 7% was the state sales tax. They weren’t including it on the price tickets, because Americans are weird. These days Arizona charges a whopping 9%, compared to Virginia at 5%, and New Hampshire at 0%. There is no strategy between these different rates. This is America. The states just does their own thing.

In the UK we pay 20%, and we call it “Value Added Tax”, because we’re not weird. Imposed centrally, we apply this tax at a uniform rate across the country, but if we wanted to, we could charge different rates in different regions, while continuing to collect it centrally.

There is serendipity to Labour’s economic policy. Mass house building is firstly intended to create demand in the economy, but by solving our chronic housing shortage, we reduce our private sector rents, and thereby counter poverty. It all seems so neat that, however, there is a flaw in this strategy.
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Getting tough on late payment to SMEs

April 12, 2013

There was an interesting article in last week’s Economist about a speech made by Chuka Umunna to the Federation of Small Businesses, which began with the sleepy audience unengaged, but went on to inspire them to shout, “Hear hear!” I suspect this was following the announcement that Labour would crack down on big companies that deliberately hold out payments to small companies for months on end.
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The Economic Case for more Social Housing

April 1, 2013

Rising house prices used to make cheery headlines in the papers. It was associated with economic success. We were all getting richer. If people can afford to pay more and more for houses, then the economy must be getting bigger and bigger. In truth, the rise in house prices had just as much to do with the easy availability of mortgages, which created an “effective demand”.

As a youngster, I remember how people’s excitement of buying their own council flat infected everyone else. Aspiration amongst the working population must be one of the most important factors to a thriving economy, and it was very much instilled in the east enders in the ‘80s. This is how Thatcher won.

Today we hear commentators speak of the “lack of animal spirits”, referring to an economy which is moribund. Few people are investing lavishly. Few new enterprises are born from a sketch on the back of a beer mat. There’s a general lack of excitement, of inspiration. A lack of moral.

The problem is that if we want to fix the problem of over-valued houses, then we would need to supply enough new homes to cause house prices to fall. However, deflation would stop developers buying land for fear of losses through falling prices. House price deflation would effect consumer spending. If people believe they are getting poorer in their assets they will avoid splashing out. How many politicians would choose policies that would have such an effect?
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