Tuesday, February 16, 2010

Taxation in the UK

Not the best way to stimulate aggregate demand. The UK must realize its national accounts will look terrible in the next couple of years, but one of the themes of this blog is that a SOVEREIGN ISSUER OF ITS OWN CURRENCY has incredible latitude in adjusting aggregate demand by fiscal and taxation policy, and need not fear from liquidity risk as it does not have to "get" currency from any exogenous source.

A rise in VAT is looming whichever party wins the general election, as Labour and the Conservatives draw up plans to balance Britain’s books.

Alistair Darling and George Osborne, the Shadow Chancellor, are both considering raising VAT to as high as 20 per cent — the European average — from the current rate of 17.5 per cent, The Times has learnt.

Doing so would raise an extra £13 billion a year at a time when financial markets are searching for signs that whoever takes power is serious about tackling Britain’s £178 billion deficit.

Though Labour and the Tories have denied having any current plans to increase VAT, neither will rule it out and The Times understands a rise in the tax is being considered by both parties

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