Balls’s smart move on VAT

Ed Balls’s decision to oppose any rise in VAT is smart politics and smart economics.

Ed Balls's bold claim that ruling out a rise in value-added tax would have saved Labour from defeat in the election is rather wide of the mark. With the electorate inherently sceptical of tax pledges by politicians, such a promise would never have shifted many votes.

But there was then and is now a principled argument for opposing any rise in this most regressive of taxes. By staking out a clear position ahead of next week's emergency Budget, Balls has invited his rival leadership candidates to follow suit.

I'd be surprised if the coalition chose to raise VAT this early in its lifetime, but with the new Office for Budget Responsibility poised to downgrade Labour's growth forecasts, George Osborne might believe he has found a justification.

In fact, should growth be weaker than expected, few responses could be worse than increasing VAT. A rise in the tax would not only hit the poorest, who spend a disproportionate amount of their income on basic goods, hardest, it would also suck vital demand out of the economy.

A recent report for the Centre for Retail Research found that raising the VAT rate to 20 per cent would cost each household £425 a year on average. It added that the resultant drop in consumer spending could cost 47,000 jobs and lead to the closure of almost 10,000 stores.

Balls doesn't cite these figures, but he is right when he argues:

It would be economic madness to raise VAT -- on top of the spending cuts the government has announced. Raising VAT will either depress spending and stifle growth, increase prices and stoke inflation, or be absorbed by the struggling retail sector.

But as well as being smart economics, opposing a rise in VAT is smart politics. Along with electoral reform, tax is one of the most potentially disruptive internal tensions within the coalition.

Should the government raise VAT while backtracking on its plan to increase capital gains tax significantly, Balls's intervention will look prescient.

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George Eaton is political editor of the New Statesman.

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PMQs review: Jeremy Corbyn turns "the nasty party" back on Theresa May

The Labour leader exploited Conservative splits over disability benefits.

It didn't take long for Theresa May to herald the Conservatives' Copeland by-election victory at PMQs (and one couldn't blame her). But Jeremy Corbyn swiftly brought her down to earth. The Labour leader denounced the government for "sneaking out" its decision to overrule a court judgement calling for Personal Independence Payments (PIPs) to be extended to those with severe mental health problems.

Rather than merely expressing his own outrage, Corbyn drew on that of others. He smartly quoted Tory backbencher Heidi Allen, one of the tax credit rebels, who has called on May to "think agan" and "honour" the court's rulings. The Prime Minister protested that the government was merely returning PIPs to their "original intention" and was already spending more than ever on those with mental health conditions. But Corbyn had more ammunition, denouncing Conservative policy chair George Freeman for his suggestion that those "taking pills" for anxiety aren't "really disabled". After May branded Labour "the nasty party" in her conference speech, Corbyn suggested that the Tories were once again worthy of her epithet.

May emphasised that Freeman had apologised and, as so often, warned that the "extra support" promised by Labour would be impossible without the "strong economy" guaranteed by the Conservatives. "The one thing we know about Labour is that they would bankrupt Britain," she declared. Unlike on previous occasions, Corbyn had a ready riposte, reminding the Tories that they had increased the national debt by more than every previous Labour government.

But May saved her jibe of choice for the end, recalling shadow cabinet minister Cat Smith's assertion that the Copeland result was an "incredible achivement" for her party. "I think that word actually sums up the Right Honourable Gentleman's leadership. In-cred-ible," May concluded, with a rather surreal Thatcher-esque flourish.

Yet many economists and EU experts say the same of her Brexit plan. Having repeatedly hailed the UK's "strong economy" (which has so far proved resilient), May had better hope that single market withdrawal does not wreck it. But on Brexit, as on disability benefits, it is Conservative rebels, not Corbyn, who will determine her fate.

George Eaton is political editor of the New Statesman.