Tom Griffin (London, OK): Over at Compass, Tom Copley of London Young Labour points to the historic significance of Alistair Darling's decision to cut VAT while bringing in a new 45 per cent rate of income tax.
To understand why these changes are so important, we need to look at the history of taxation in this country since Margaret Thatcher came to power in 1979. A key part of her economic policy was the transference of taxation away from income and on to spending. In her first budget in 1979 she cut the top and basic rates of income tax whilst increasing VAT from two rates of 8% and 12.5% to a unified rate of 15%. This put money in the pockets of the rich whilst punishing the poorest who would see little reduction in their tax bills whilst facing increasing prices. Indirect taxes, favoured by Thatcher, always hit the poor hardest.
At ConservativeHome's CentreRight blog, Andrew Lilico puts the same comparison in a slightly different perspective:
In the first Thatcher term there was a major tax reform - switching away from income tax to VAT. The government attempted to make this seem less inflationary by trying to get us to use a "taxes and prices index", but no-one used it, and the impression of the VAT increase was that it fueled inflationary expectations. Perhaps we are all much more sophisticated now and the deflationary effects of VAT will be "seen through", but I'll believe that when I see it. And if that was really the concept, why not cut income tax in the first place?
Of course, Darling's VAT cut is intended to be temporary, but it may nevertheless mark the end of an era.
