The devil is always in the detail, which it'll take time to piece apart, but on first impression it looks as though Alistair Darling is spending a lot to relieve the UK of its current malaise.

He talked a lot about tax cuts, and reduced VAT from 17.5 per cent to 15 per cent. All good, but moments later he announced a future half-a-per cent increase in national insurance contributions, which will claw back around £5bn from businesses and employees per year.

The VAT holiday lasts for 13 months, will the NIC increase expire in a similar time frame? I wouldn’t bet on it. And people will feel the latter tax increase much more acutely than the former tax cut.

Retailers are already slashing prices by between 20 and 40 per cent to get customers in the door. In these bargain basement times a 2.5 per cent reduction in VAT on luxury items will hardly register, and don’t forget that essentials such as food and public transport will not come down in price.

Postponing the planned increase in small business corporation tax was announced as if it was a tax cut, when in fact it leaves us in the same place, while borrowing predictions are based on growth returning to the UK half way through next year – a very optimistic expectation.

The fact is Alistair Darling had little or no room to manoeuvre, and while he had to seem to cut taxes, the reality of government debt means he’ll actually increase them for most people.

At least he exhibited a bit of Old Labour wealth redistribution with the decision to increase the top band of income tax for people earning more than £150,000 a year.

Another thing to be thankful for is that, in fiscal terms, life shouldn't get worse for small businesses before trading conditions improve.  

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By Dan Matthews  on   Nov 24,2008

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Keywords

tax    Alistair Darling    VAT    National insurance    corporation tax   

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