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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The future of policing is still at risk even after George Osborne's U-Turn

The police have avoided the worst, but crime is changing and they cannot stand still. 

We will have to wait for the unofficial briefings and the ministerial memoirs to understand what role the tragic events in Paris had on the Chancellor’s decision to sustain the police budget in cash terms and increase it overall by the end of the parliament.  Higher projected tax revenues gave the Chancellor a surprising degree of fiscal flexibility, but the atrocities in Paris certainly pushed questions of policing and security to the top of the political agenda. For a police service expecting anything from a 20 to a 30 per cent cut in funding, fears reinforced by the apparent hard line the Chancellor took over the weekend, this reprieve is an almighty relief.  

So, what was announced?  The overall police budget will be protected in real terms (£900 million more in cash terms) up to 2019/20 with the following important caveats.  First, central government grant to forces will be reduced in cash terms by 2019/20, but forces will be able to bid into a new transformation fund designed to finance moves such as greater collaboration between forces.  In other words there is a cash frozen budget (given important assumptions about council tax) eaten away by inflation and therefore requiring further efficiencies and service redesign.

Second, the flat cash budget for forces assumes increases in the police element of the council tax. Here, there is an interesting new flexibility for Police and Crime Commissioners.  One interpretation is that instead of precept increases being capped at 2%, they will be capped at £12 million, although we need further detail to be certain.  This may mean that forces which currently raise relatively small cash amounts from their precept will be able to raise considerably more if Police and Crime Commissioners have the courage to put up taxes.  

With those caveats, however, this is clearly a much better deal for policing than most commentators (myself included) predicted.  There will be less pressure to reduce officer numbers. Neighbourhood policing, previously under real threat, is likely to remain an important component of the policing model in England and Wales.  This is good news.

However, the police service should not use this financial reprieve as an excuse to duck important reforms.  The reforms that the police have already planned should continue, with any savings reinvested in an improved and more effective service.

It would be a retrograde step for candidates in the 2016 PCC elections to start pledging (as I am certain many will) to ‘protect officer numbers’.  We still need to rebalance the police workforce.   We need more staff with the kind of digital skills required to tackle cybercrime.  We need more crime analysts to help deploy police resources more effectively.  Blanket commitments to maintain officer numbers will get in the way of important reforms.

The argument for inter-force collaboration and, indeed, force mergers does not go away. The new top sliced transformation fund is designed in part to facilitate collaboration, but the fact remains that a 43 force structure no longer makes sense in operational or financial terms.

The police still have to adapt to a changing world. Falling levels of traditional crime and the explosion in online crime, particularly fraud and hacking, means we need an entirely different kind of police service.  Many of the pressures the police experience from non-crime demand will not go away. Big cuts to local government funding and the wider criminal justice system mean we need to reorganise the public service frontline to deal with problems such as high reoffending rates, child safeguarding and rising levels of mental illness.

Before yesterday I thought policing faced an existential moment and I stand by that. While the service has now secured significant financial breathing space, it still needs to adapt to an increasingly complex world. 

Rick Muir is director of the Police Foundation