Why a VAT cut would pay for itself

The Guardian is wrong to oppose Balls's call for a temporary VAT cut.

Ed Balls's bold call for a temporary VAT cut might have been welcomed by Guido Fawkes but some of the shadow chancellor's traditional allies haven't been so supportive. A Guardian editorial declares that a cut in VAT "makes sense only if one wants to shovel £2.5bn a month out of the Treasury as fast as possible". But it's clear that the Grauniad has got its sums wrong. Osborne's VAT increase will raise around £13bn a year, so at worst a reduction to 17.5 per cent would cost the Treasury £1.08bn a month, not £2.5bn.

This error aside, there's much evidence that a cut in VAT would largely pay for itself. The Office for Budget Responsibility has forecast that the increase will reduce GDP by around 0.3 per cent a year. We know from the OBR's most recent Economic and Fiscal Outlook that a reduction of 0.3 per cent in growth adds around £13.9bn to the deficit (over two years).

Ok, so what about the remaining £7bn? Well, as Balls said in his speech yesterday, a VAT cut would act as an effective fiscal stimulus. The Tories' decision to raise the tax was partly based on the mistaken belief that its temporary reduction to 15 per cent failed to stimulate the economy. But an analysis by the Centre for Economics and Business Research found that consumers spent as much as £9bn more than they otherwise would have done during the period for which the cut ran.

A VAT cut would boost consumer confidence, lower inflation (thus reducing the risk of a premature rate rise), protect retail jobs and increase real wages, meaning that it would likely pay for itself in the long-term. With growth flat for the last six months, the economic case for a VAT cut is overwhelming.

George Eaton is political editor of the New Statesman.

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Lord Sainsbury pulls funding from Progress and other political causes

The longstanding Labour donor will no longer fund party political causes. 

Centrist Labour MPs face a funding gap for their ideas after the longstanding Labour donor Lord Sainsbury announced he will stop financing party political causes.

Sainsbury, who served as a New Labour minister and also donated to the Liberal Democrats, is instead concentrating on charitable causes. 

Lord Sainsbury funded the centrist organisation Progress, dubbed the “original Blairite pressure group”, which was founded in mid Nineties and provided the intellectual underpinnings of New Labour.

The former supermarket boss is understood to still fund Policy Network, an international thinktank headed by New Labour veteran Peter Mandelson.

He has also funded the Remain campaign group Britain Stronger in Europe. The latter reinvented itself as Open Britain after the Leave vote, and has campaigned for a softer Brexit. Its supporters include former Lib Dem leader Nick Clegg and Labour's Chuka Umunna, and it now relies on grassroots funding.

Sainsbury said he wished to “hand the baton on to a new generation of donors” who supported progressive politics. 

Progress director Richard Angell said: “Progress is extremely grateful to Lord Sainsbury for the funding he has provided for over two decades. We always knew it would not last forever.”

The organisation has raised a third of its funding target from other donors, but is now appealing for financial support from Labour supporters. Its aims include “stopping a hard-left take over” of the Labour party and “renewing the ideas of the centre-left”. 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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