So, economic stimulus

[fivemack]

VAT has gone down by 2.5% as of 1 December, which means the fancy camera I want to buy could conceivably cost 15 quid less in the New Year than it does now. Of course, fancy cameras being made mostly of microchips, it's likely to cost fifteen quid less anyway thanks to process optimisation in the silicon foundries of Taiwan, but hopefully these are cumulative.

But the purpose of an economic stimulus can't just be to move lumps of consumption around by a few months; I don't think that even in the current climate it's necessary to run a big sale in November purely so that you have the cash to pay the salaries for your shop workers in December.

So Alistair Darling's job is to make Britons more profligate than they are now for the next two years (despite the financial mess being, as far as I can see, a function of a decade of unbalanced profligacy) and more frugal than they are now for at least four years to follow. I don't see how subtle tweaks to the tax system can do this; indeed, I don't know if it can be done. Interest rates are the obvious instrument, but profligacy and frugality are functions of upbringing and circumstance in that order; after-tax interest rates on straight savings accounts are now below the rate of inflation, but this has meant that I grumble slightly, keep most of my money in just-as-insured short-term bonds, and devote slightly more to the stock market where there's a possibility of higher returns.

What government policy would make you go out and spend more in February?

Comments

[(Anonymous)]

Moving consumption around is a big part of the point. Consumers and shops have been engaged in a big game of chicken as consumers refuse to spend in the expectation that the shops will have to have a big sale and they can get stuff cheap; shops have been trying to put off having to slice their prices in the hope that people will eventually get fed up of waiting and buy their new stuff now.

The resulting economic inactivity is propelling us into recession.

Dropping VAT now and promising to put it up later is meant to encourage people to make their big purchases over the next thirteen months, instead of continuing to wait. So if I have been holding onto my old car instead of buying a new one for the last year or so, this is supposed to encourage me to buy my new car in 2009, thus helping the economy keep going around, instead of waiting indefinitely.

Is the idea that VAT goes back to 17.5% in thirteen months then? I was expecting it to rise to 20% or more, for the dual purpose of punishing those who wait too long to make their big purchases and plugging the vast budget hole, but they seem to have gone for NI and high-rate income tax instead. Well, it's not like they're going to win the next election, so I suppose these are things they'll never actually have to face.

S.

[jiggery-pokery.livejournal.com]

The BBC and others have seen a document where there has been discussion of bringing it up to 18½% from 2011, but this was apparently considered but rejected. Might well go up further than that still at some point.