Jeremy Browne: VAT cut has helped the richest the most

by Stephen Tall on April 8, 2009

The Lib Dem press release headline is stark: Wasteful VAT cut only benefiting the rich. (It’s also, whisper it gently, not 100% accurate: for ‘only’ read ‘mostly (ish)’).

Here’s what Lib Dem shadow chief financial secretary Jeremy Browne has to say about the party’s research showing that the VAT ‘savings work out at an average of over £9 a week for the richest households, while poorer households are saving less than £3, despite recent claims from Gordon Brown that families would save at least £5 a week’:

The Government’s defence of its wasteful VAT cut continues to unravel. Its benefits have been overstated and most of the money is not helping the poorer households that are struggling in the recession.

“This ineffectual VAT cut is costing £1bn a month. Ministers should scrap it immediately and spend the money on transport and environmental projects which would boost the economy, create new jobs and leave a lasting green legacy for Britain.”

The picture is in fact more complex than the Lib Dem press release suggests, as Andrew Sparrow notes in The Guardian:

… it depends how you slice the figures. In response to parliamentary questions, the Treasury minister Stephen Timms released figures showing how much different groups save as a percentage of their total income from the cut in VAT to 15%. Viewed from this angle, the VAT cut looks progressive. The poorest 10% of households save the equivalent of 1.6% of annual income, while the richest 10% save 0.5% of annual income.

In that sense, then, the VAT cut can be defended as ‘progressive’, as the poorest benefit proportionately more than the richest, but not in absolute terms. The same would, I guess, also be true of the Lib Dem pledge to cut basic rate income tax by 4p – though that would of course be part-funded by wealth taxes targeting the richest.

Strange to say, though, I don’t remember Gordon Brown proudly proclaiming the Labour Government’s wish to cut £1.2 billion from the taxes of the richest 10% in the country when acclaiming the VAT cut. What he did claim, though, was that the VAT cut would ensure “people have at least £20 more in their pockets every month”. Which simply isn’t true for the poorest 60% of people (ie, the majority of households). Yes, that’s right, folks, after last year’s 10p tax fiasco, it’s yet another Gordon Brown tax-con!