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Coalition Government May Have To Impose £50Bn Tax Rise

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http://www.telegraph.co.uk/finance/economics/7721144/Coalition-government-may-have-to-impose-50bn-tax-rise.html

City economists now view it as an odds-on probability that the coalition will raise VAT to 20pc within 18 months, according to a panel of economists regularly consulted by the Treasury.

Others warned that the VAT increase may be able to raise barely more than a fifth of the revenues required.

Jonathan Loynes of Capital Economics warned that the Office for Budget Responsibility, the three-man independent committee charged with assessing how much to cut the deficit, could urge the Government to raise taxes by £50bn, which would imply that a 9.5p increase in the basic rate of income tax would be necessary on top of a VAT rise.

He pointed out that the committee, chaired by Sir Alan Budd, may take issue with the Treasury's existing economic forecasts, and could question the ease with which spending can be cut.

Mr Loynes said: "Tax increases eventually worth £50bn or more may be needed, at least some of which may be implemented in the emergency budget."

Of the 28 independent economists the Treasury currently surveys on their forecasts, 24 told the BBC they expected the sales tax to increase from its current level of 17.5pc by the end of 2011.

An increase to 20pc would bring it in line with some European states. Another option would be to scrap the exemptions on many items, including books, food and childrens' clothes.

Justin King, the chief executive of supermarket J Sainsbury, said yesterday that an increase in VAT appears likely.

"I do not think anyone disputes that the general direction in which the government is travelling is 'taxes up' and 'spending down'," he said, adding that the increase would hit household budgets.

Taxes up aggregate demand down, question is will the drop in aggregate demand depress tax revenues further? No doubt all the forecasts will accurately predict current spending etc... remains the same and there will be no loss in revenue.

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We knew tax rises were coming whichever party won the election, so not much of a surprise really.

£50bn is only the start, the deficit is over £150bn or so now.

As for the taxes they are choosing to increase, I am quite happy for VAT to increase as it can be avoided to a large extent.

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Just imagine the fury from the Tories if labour had introduced £50bn in tax increases.

Tax and spend - typical Tories!!!

I think you'll find the money has already been spent and the bill is now due with no money to pay for it.

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Seems a lot of speculation so far. I haven't heard plans from the coalition yet..

But I will say tax raises/spending cuts are a bad idea. Greece, Ireland and Portugal tried that path and look at where it has led them.

The one situation I would support austerity is if inflation started rising too much, and the option to print was no longer there.

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VAT is a great tax for the tories as it means the poor and average, who need to spend more of their income to get by, end up paying a greater % of their income in tax than the rich. It´s horribly regressive. It´s taxing the poor.

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Seems a lot of speculation so far. I haven't heard plans from the coalition yet..

But I will say tax raises/spending cuts are a bad idea. Greece, Ireland and Portugal tried that path and look at where it has led them.

The one situation I would support austerity is if inflation started rising too much, and the option to print was no longer there.

yeah yeah yeah!

lets keep the spending going till we all starve.

lets fish out the oceans.

lets kill everything else till we are the only things left..

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Seems a lot of speculation so far. I haven't heard plans from the coalition yet..

But I will say tax raises/spending cuts are a bad idea. Greece, Ireland and Portugal tried that path and look at where it has led them.

The one situation I would support austerity is if inflation started rising too much, and the option to print was no longer there.

Where has it led them? So carrying on spending money they don't have was sustainable and the bond market wasn't going to pull the plug with extortionate interest rates?

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VAT is a great tax for the tories as it means the poor and average, who need to spend more of their income to get by, end up paying a greater % of their income in tax than the rich. It´s horribly regressive. It´s taxing the poor.

someones gonna pay.

but not me, or him, or them.

FFS, do you want us all to starve....we have Elites to feed dontchaknow

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VAT is a great tax for the tories as it means the poor and average, who need to spend more of their income to get by, end up paying a greater % of their income in tax than the rich. It´s horribly regressive. It´s taxing the poor.

It's taxing everyone. And as life's essentials (food, clothing, public transport) are VAT-exempt, there is no credible argument that it discriminates against the vulnerable. All it means is that the benefit-subsistent charver will have to pay a little more for the Burberry gear he wears while puffing away at his Bennies and vegetating in front of the 42" plasma; and Rupert and Charlotte might have to forego a weekend break in Paris this year.

The real advantage of putting the tax rise on VAT is that it should encourage saving, which all of us need to do more of.

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It's taxing everyone. And as life's essentials (food, clothing, public transport) are VAT-exempt, there is no credible argument that it discriminates against the vulnerable. All it means is that the benefit-subsistent charver will have to pay a little more for the Burberry gear he wears while puffing away at his Bennies and vegetating in front of the 42" plasma; and Rupert and Charlotte might have to forego a weekend break in Paris this year.

The real advantage of putting the tax rise on VAT is that it should encourage saving, which all of us need to do more of.

? Clothes aren't exempt.

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It's taxing everyone. And as life's essentials (food, clothing, public transport) are VAT-exempt,....

At the moment they are. Other essentials like heating already have VAT.

VAT is the obvious thing to increase but if the rest of the population is anything like me - demand is going to fall through the floor as I plan to spend even less than I currently do.

Now a breathing tax on bankers - that is something I could wholeheartedly support.

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I'm sure that we're going to see an announcement of a public sector pay freeze/cut very soon, probably within the month.

Immediately announcing a 5% pay cut for ministers yesterday is the first stage in warming the public up to the idea. Alex Salmond is meeting the new government this morning - he'll be told that Scotland must match these cuts. Spain nodded through a 5% pay drop for the public sector last week.

This and the VAT rise are a virtual certainty.

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We knew tax rises were coming whichever party won the election, so not much of a surprise really.

£50bn is only the start, the deficit is over £150bn or so now.

As for the taxes they are choosing to increase, I am quite happy for VAT to increase as it can be avoided to a large extent.

+1

I'd much prefer a simpler tax system where the more you spend (increased use of resources) you pay more, rather than tax at source.

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At the moment they are. Other essentials like heating already have VAT.

VAT is the obvious thing to increase but if the rest of the population is anything like me - demand is going to fall through the floor as I plan to spend even less than I currently do.

Now a breathing tax on bankers - that is something I could wholeheartedly support.

If the rest of the population was anything like you, they wouldn't have taken on huge amounts of debt via personal loans and mortgages, and we wouldn't be in this mess to start with.

There was limited impact when VAT went from 15% to 17.5% and I doubt if a move to 20% will cause demand to drop through the floor, especially if they introduced a new top rate of 20-25% and only applied it to 'luxury' good (and by luxury, I don't mean biscuits!)

We have a huge imbalance in our country's accounts. To tackle if effectively we need to come at it from both directions - reduce spending and increase revenue. In the short term the only way to increase revenue is to raise taxes, in the longer term they can stimulate industry and commerce which will also help to address the balance of payments. This isn't news, it's exactly what ANY incoming government would have to do, in order to avoid default.

Edited by redalert

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Seems there are two realities.

The pre-election reality - some cuts needed, some tax rises needed, some growth needed.

And the post-election reality.

We're fu*cked. Massive spending cuts and tax rises necessary.

I'd like to see an immediate 'maximum public sector salary to be 100k with everyone on salaries above 100k sacked and having to re-apply for their jobs- if they want them. If they think they can get more in the private sector ... GO FOR IT!

Everone on 50k to 100k in the public sector - immediate 20% pay cut - again, if you don't like it, sacked and re-apply. Many of the daftly paid jobs have only been around for a few years so redundancy payments won't be too bad.

Public sector pay freeze - indefinite.

New public sector final salary pension schemes abolished.

Existing members, contributions doubled now. Final salary to never be more than 50% of final salary - and not index linked.

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+1

I'd much prefer a simpler tax system where the more you spend (increased use of resources) you pay more, rather than tax at source.

The problem with that is that the poor pay most proportionately. If you have a minimum wage job chances are you HAVE to spend every penny you earn.

If you earn 40k you'll have to spend a similar amount on essentials but, after that, you choose whether or not to indulge yourself.

So, for someone who chooses not to indulge themselves - to take really simple figures ....

Someone earning 10k spends every penny of it on essentials and pays 2k tax - they pay 20% tax.

Someone earning 40k spends 10k on essentials and pays 2k tax - decides to save the rest and pays no further tax - they pay 5% tax.

Whereas - Lib dem proposals - person earning 10k pays no tax. Person earning 40k pays (say) 8k tax. Seems fairer to me.

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If the rest of the population was anything like you, they wouldn't have taken on huge amounts of debt via personal loans and mortgages, and we wouldn't be in this mess to start with.

There was limited impact when VAT went from 15% to 17.5% and I doubt if a move to 20% will cause demand to drop through the floor, especially if they introduced a new top rate of 20-25% and only applied it to 'luxury' good (and by luxury, I don't mean biscuits!)

We have a huge imbalance in our country's accounts. To tackle if effectively we need to come at it from both directions - reduce spending and increase revenue. In the short term the only way to increase revenue is to raise taxes, in the longer term they can stimulate industry and commerce which will also help to address the balance of payments. This isn't news, it's exactly what ANY incoming government would have to do, in order to avoid default.

Laffer says no.

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How can wages and prices keep going up and up....no one then is any better off.....the capitalist economy is built on permanent growth that has now fallen off the cliff....get real. ;)

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We knew tax rises were coming whichever party won the election, so not much of a surprise really.

£50bn is only the start, the deficit is over £150bn or so now.

As for the taxes they are choosing to increase, I am quite happy for VAT to increase as it can be avoided to a large extent.

VAT is a regressive tax. I would , as someone on a reasonbaly good income, be more than happy to pay more income tax as opposed to putting up VAT or extending its scope to, say, food.

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....I'd like to see an immediate 'maximum public sector salary to be 100k with everyone on salaries above 100k sacked....

Mrs Windsor and her sponger family will not like that very much.

(oh and BTW neither will all the Tory council leaders, Tory and UKIP MEPs you've just sacked...)

Edited by non frog

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  • 277 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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