The knock on effects

I believe the biggest mistake they made with the budget was to increase the VAT. Psychologically it was wrong, and I question whether the value of 3% of VAT spread among the other sources of income for the government, would have been too difficult to manage, or are they trying to make a point?

I know nothing about George Osborn, his background, his experience, but it probably doesn’t matter because he won’t have been the only person responsible for the Budget. What struck me about it was that the knock on effect had been totally disregarded. Let me give you an example, in the 50s, I bought my first house, four bedrooms, and cost about £7000. A few years later I bought another house, five bedrooms, a quarter of an acre of land, for £12,000. In 2003 I sold it and bought a chalet bungalow with only two-bedrooms and a box-room for £300,000, which is now only worth £270,000. The knock on effect of those 50 years is the variation in the economy with time, totally unpredictable, and in such vast swings. In this example the change in the first five years was at a thousand a year, in the next 40 years it was at an average rate of 6,500 year, and the fall has been at 4.000 a year. In circumstances like this people become cautious, especially when the levels of taxation, such as VAT, are varied, the unpredictability causes them to think twice, and we have the situation we have today with the sale of houses stagnating. The knock on effect of that is that people often refurnish when they move house. The current climate is not suitable to encourage house buying. Currently large furniture shops are having tremendous sales, and the small ones are going to the wall.

One could easily predict that as with Maggie Thatcher, there could be an up rise of union disfavour if the lower ranks are having a two-year wage freeze. The health service, Local Authority workers, and civil servants on the lower ranks generally, will find it unacceptable that they are working under pressure, because of the cutbacks, while their counterparts, self-employed or in industry are probably being reimbursed in accordance with the cost of living. The psychological effect of a rise in VAT is much greater than 3%. People actually went out and bought alcohol before the rise became legal. The money they were saving was negligible, it was the fact that hit home. I may be a Job’s comforter, but I believe 3% on VAT is going to have a greater effect on the economy than was intended. In my experience VAT looms larger in people’s minds than most other taxation, and until it becomes routine and forgotten about, sales will go down, especially in haberdashery and furniture. Osborn underlined the fact that the elderly will be cared for, but immediately they have lost 3% of some of their income. I fancy that the sales of vehicles will drop over the next six months, in an industry which is still fighting to stay afloat. When you see the level of advertising in the press, on the Internet, and on TV, one realizes that the credit crunch is hitting hard.

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