Evasive Tories, VAT and the ‘Jobs Tax’

By Shibley Rahman / @shibleylondon

Andrew Marr interviewed David Cameron on his show last Sunday (January 9th). As criticism increases of how deceitful David Cameron and Nick Clegg have been in framing their explanation of the UK economy – and especially the ‘jobs tax’. Cameron’s interview was a shining example of his evasive nature in answering a simple question. By the time you’ve got to the end of the answer, you’ve forgotten the original question…

Marr:
You’ve mentioned jobs several times there. You must have had an estimate from your own Office for Budget Responsibility about the ‘jobs effect’ of the VAT rise to 20%. Roughly speaking, how many people are going to lose their jobs because of that?

Cameron:
Oh look – look, of course, putting up VAT or any tax has an impact on the economy. You have to ask yourself the question – what would be the impact of not dealing with the deficit? We wouldn’t be sitting here talking about growth and jobs, we’d be sitting here saying, ‘you’re in a hole like Ireland, like Greece, and you’ve got the IMF knocking at your door. You’ve got credit downgrades, your interest rates are piling up, confidence is sapping out of the economy, the economy…

Marr:
Sure, but ..

Cameron:
No, but this is very important. Any tax rise has an impact on economic growth, I can’t for a minute deny that. Economic forecasts are now done independently by the Office for Budget Responsibility. But you have to ask the question, what if we weren’t dealing with the deficit, which would be (I think) economic madness, and the second question you have to ask is, if you don’t do VAT, what tax would you do? The first category there would probably be National Insurance, that’s what Labour have committed to, and putting up National Insurance, as I’ve just said, when you’re trying to get the economy growing and get jobs growing would be a very very perverse thing to do.”

Marr:
And nonetheless, [VAT] is a regressive tax. You yourself have said VAT is a regressive tax. Is it at 20% there for the long haul; there for good?

You can see that Marr has given up, and starts waving the white flag after an exhausting non-answer.

A simpler explanation is provided by Stuart Adams, Institute of Fiscal Studies’ senior research economist, who told Cathy Newman’s FactCheck that:

“VAT tends to weaken work incentives much like income tax or national insurance would. Rather than reducing the amount of take home pay that you can get for working an extra hour it reduces the amount you can buy with your take home pay. So VAT acts as a tax on jobs if you like – just like Income Tax and National Insurance do.”

However, this is only part of the story. Indeed, estimates vary widely on the effect VAT has on jobs, from minimal to a great deal. However, one aspect is definite – to miss VAT out of the discussion altogether, as George Osborne and David Cameron have desperately tried to do in spinning their ‘jobs tax’ Tory Story, is grossly deceitful.

Shibley Rahman’s also blogs at shibleyrahman.com