It's official: VAT cut is working

Last year, faced with a world-wide financial crisis that led to the economic downturn, the Government looked at the best way to help people and businesses and stimulate the economy.

As well as a £145 cut to income tax for basic rate taxpayers, a £60 payment for pensioners, increases in tax credits, pensions and benefits and £3bn of capital investment brought forward the Labour Government cut VAT by 2.5%

At the time, the Conservatives claimed that the VAT cut was a waste of money (despite being backed by Tory frontbencher Ken Clarke MP) and said that £5 a week to the average family didn't mean anything.

Labour chose to cut VAT because we wanted to put money in peoples' pockets quickly and shore up spending in the High Street. Other types of tax cuts couldn't be introduced for six months.

• But £12.4billion is being put back into the economy throughout this year as a result of the VAT cut;
• It provides help for everyone, regardless of income, including the one third of people, like pensioners and students, who don?t benefit from income tax cuts;
• It is worth £275 on average to households ? over £20 a month;
• On expensive items, the VAT change makes a big difference. Toyota would have to charge £254 extra for every Toyota Auris and Nissan an extra £306 for each Qashqui (their cheapest models)
• It is implemented for a temporary period of 13 months until the beginning of 2010, so is consistent with achieving medium-term fiscal sustainability. Temporary, timely and targeted boosts have a greater impact on the economy.

But it's not just Labour who says we got this right - independent experts say the VAT cut was the right thing to do, and that the Tories, once again, have got it wrong:

The Centre for Economics and Business Research said:

"The figures are clear; the VAT cut is working. The CEBR estimates that retail sales for the year are likely to be £8-9bn higher that they would have been without the cut."
Source: BBC

The Institute for Fiscal Studies said:

"This policy change is likely to be a reasonably effective economic stimulant. Those dismissing it as a failure ignore the likelihood that things would have been even worse without it."
Source: IFS website
The Guardian

And Goldman Sachs said:

"The latest release appears to confirm that the robust December (retail) data was no fluke. With clothing and footwear (+10.8% yoy) making the biggest contribution, it appears that the VAT cut was instrumental in driving this strength."
Goldman Sachs - UK Economics Analyst, Issue No 09/02 Feb 27, 2009

The Conservatives were wrong about the need for a financial stimulus. They were wrong to prefer to do nothing while people struggled with an unprecedented global recession. And they got it wrong on the VAT tax cut.

They can't be trusted to be put in charge of our economy when they have such a track record of getting it wrong.