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The
temporary cut in the VAT (Value Added Tax), believed to
be the first time such a measure has been taken in the
UK, forms part of a major "fiscal stimulus"
package due to be outlined by the Chancellor, Alistair
Darling, in the British Parliament overnight (Tuesday
morning AEDT time).
The
financial statement, known as the Pre-Budget report, is
the most important economic statement of the
British parliamentary cycle and will form a centerpiece
of the Labour Party's strategy to lead the UK through
the recession - and potentially on to an early, mid year
election.
The
Prime Minister, Gordon Brown, has undergone an
unprecedented political renaissance during the past
couple of months as his leadership both in the UK and
Europe during the financial crisis has thrown the
Conservatives back into the political shadows.
Government
soures were reported to be working on the final detail
of the financial plan over the weekend but were quoted
in all the major newspapers - and the BBC - on Sunday as
saying the 2.5% cut was the "most likely"
central plank of the plan.
Estimated
to cost up to 20 billion ($47.4 billion), the drop in
the main rate of VAT was predicted to save the average
family more than 10 a week. The Times reported a
Government source saying that the move would cost around
12.5 billion in the first year but would ''help
everybody and help them quickly.''
The
British Government will now be expected to embark on a
major borrowing program estimated to move to 117 billion
over the next two years to fund the new taxation regime
- pilloried by the Conservative Opposition who warned
over the weekend of a ''tax bombshell'' and large tax
rises in the near future to repay funds borrowed to fund
the cuts.
Mr
Darling, who will deliver the strategy in the House of
Commons, is also expected to:
*
Introduce several major changes for business, including
relief from taxation on buildings left empty and on
dividends paid on profits earned abroad. This is
designed to provide incentives for multinational
companies to remain the UK.
*
Extend for at least a year the 2.7 billion rescue
package for taxpayers who were losers under the
controversial abolition of the 10p starting rate of
income tax.
*
Delay, again for at least a year, plans to place big
excise duties on older cars.
*
Aid homeowners struggling to meet mortgage payments.
They will be given three months grace before lenders can
begin repossessions. Renters who live in homes where the
landlord has defaulted on the mortgage will also be able
to continue paying rent to the lender/bank.
The
last time that the VAT was changed in Britain was in
1991 when the then Tory Chancellor, Norman Lamont raised
it from 15% to the current 17.5%.
It
is the only British tax that falls inside the European
regulatory system and while it is paid to the
Government, it is clear that Downing Street is hoping
that a UK move will stimulate other European economies
to do the same.
Mr
Brown is scheduled to address the Confederation of
British Industry (CBI) in London overnight (Australian
time) and his significant parts of his speech have been
circulated, including a warning that a failure to take
decisive action to deal with the economic downturn would
constitute a ''failure of leadership''.
''A
coordinated approach in Europe, our largest trading
partner, would be of most benefit. That is why I have
been discussing with other European leaders how we can
best work together,'' his speech is expected to say.
Last
night, the executive chairman of the huge British chain,
Marks & Spencer, Sir Stuart Rose was reported saying
that the Government's reduction in VAT would be passed
on to customers as not doing so ''would be the
equivalent of the banks not lending money.''
Source
: The Age - Melbourne, Victoria, Australia, dated
24/11/2008
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