to not give a monkeys about the deficit?

[StuckInTheMiddleWithYou]

I genuinely think we should ignore it.

If we don't pay it back to whoever we owe it to, would it be the end of the world?

And it's not just about VAT, either. The IFS has done the sums and shown that the budget is hitting the poor hardest.

Actually, the IFS methodology for this report seems pretty awful (has only skimmed through so far so doesn't want to comment too much)

also, quote from the report
"Considering all tax and benefit reforms, the overall package of reforms is regressive within the poorest nine decile groups, although the richest tenth of households lose the most in both cash and percentage terms."

I'm not sure what they want? The richest are hit hardest, what more do people want? And I'm saying that as someone probably counted in the poorest group.

(Table 3.3 of IFS shows (2010-14) 1% reduction income for bottom decile, 6.8% reduction for top)

Duritfan/edam - I agree with you on VAT.

What I would like to see is no VAT on raw unpackaged food or energy supplies or clothes. These are the basics of life.

At the moment, VAT is imposed at 8% on fuels and that seems wrong. I would like to see it taken off fuel and adult clothes but added on to processed foods. I hope that would encourage people to eat more healthily, produce less packaging waste and mean poor people would pay less VAT.

But they'd still be paying VAT at 8% on the fuel used to cook those raw foods.

Thing is, when you are really skint, you want cheap, filling food. Chips are a logical choice over salad, in those circumstances with those constraints.

Also if you are on benefits and your cooker breaks down, it may well be impossible for you to afford to repair it let alone buy a new one - I've known people on the breadline who have lived without a cooker for several months for those reasons. A single person on benefits gets something like £65 a week, so changes in VAT really hit them very hard indeed.

anastasia - haven't read the whole thing in detail yet but the press statement says: "It shows that, once all of the benefit cuts are considered, the tax and benefit changes announced in the emergency Budget are clearly regressive as, on average, they hit the poorest households more than those in the upper-middle of the income distribution in cash, let alone percentage, terms."

Think BeenBeta included energy supplies as an essential.

Perhaps there needs to be investment in social funds and loans to compensate as and when people need additional assistance for one off expenses/emergencies? So that they aren't so hard to get hold of if you're in real need.

they don't want to pay it back no suggestion of this at all, they just want to slow down the rate at which it is growing.

I think (though also haven't read it all yet) that the press release counts the emergency budget on its own rather than as an adjustment to the last Labour budget. But the report looks at the impact of them both together?

I suppose that the problem is that you can't see what the next buget would look like in advance. If we could say for sure that the next budget would be similar to the overall impact of the Labour and emergency coalition budget, then we'd be able to say that they are at least making everyone worse off fairly! But if it was the same as the emergency budget on its own then it could be a very bad thing?

I'm still undecided till I read the whole report properly I think.

Money has to come from somewhere.

Just like for individuals, you can earn it or borrow it or beg for it. If you borrow it, you need to pay it back or else the lender, and all other lenders will not lend you ever again. Or only at extortionate interest rates. This is why the so called Credit Rating is very important.

I guess the Gvt. could just print more money. That leads to inflation though and everything getting more expensive. Cue for more money printing. Germany did this in the 1920s, and this led to the most MASSIVE financial crisis, where peoples money just wasnt worth anything, and prices went through the roof. The political unrest and chaos this caused helped the nazis to power.

In Argentina,not so long ago, the left wing Government decided to simply not pay back their debts. This has led to huge inflation, and what it meant for individuals was that if you had say, 10.000 in savings or pensions, it was suddenly worth only about 3000. This happened overnight, and led to a run on the banks, riots and violence and anarchy in the street and lots of people plummeting into poverty. The country is still in turmoil, and is for most people not a happy place.

This happened only a few years ago, and shows the damage of this kind of monetary policy.

You might understand it better if you think of it as if the country were a person. Say, if I borrowed money from you to pay my expenses, and did not pay back, you would not lend me again, would you? And you would tell your friends not to lend me any either, would you?! And then, how would I pay my ongoing expenses?! It is like having to pay of a minimum amunt of your credit card debt, to keep your creditors believing you will ultimately pay the money you own them.

Saying: Fuck it, and not pay would ultimately lead to YOUR bankruptcy.

No-one's saying fuck it, let's not pay. The issue is that the current government has decided to make the very poorest in society take most of the pain. That is clearly wrong.

From Tech's link, Paul Krugman says interest rates on government debt are going down not up so there's even less reason to panic and make hasty cuts that will slow recovery - although I have no idea whether that applies to the UK as much as the US.

(And the comparison to personal or household budgets doesn't work because people can't raise taxes, as someone has already pointed out.)

On average a couple on benefits will pay an additional 50p per week for VAT something like 0.5% of their income (depending upon how you treat housing benefit). When the benefits are uprated they will get a 1.5% increase.

On expenditure deciles VAT is mildly progressive because a higher proportion of household income is paid by the wealthier households.

I have had a long lasting dispute with the IFS about their analysis. What they are doing is things like allocating the cap on housing benefits at £400 week.

The biggest factor the IFS are arguing about is a change from RPI to CPI to measure inflation. CPI has been the UK's official inflation measure since 2003 (the one the bank of england works on).

Sometimes CPI inflation is higher than RPI inflation and sometimes it is the other way.

It is unreasonable for the IFS to include this in their calculations as it is not part of taxation policy.

What I have tried to get the ONS to do is to measure household inflation for households who are dependent upon benefits so that their standard of living can be protected.

The government have agreed to look at this.

For those interested in technical issues the biggest difference in June 2010's CPI and RPI was that CPI used a geometrical mean calculation and RPI used an arithmetic mean. Not really an ideological issue.

John - CPI has been lower than RPI almost all of the time it's existed. The government chose to change the way rises in benefits are calculated - of course the IFS has to factor this into their assessment, it would be ridiculous not to.

This is a very misleading report. The rich are paying a lot more than the poor and there are so very many people on benefits that if we just tried to concentrate higher taxes/cuts on the tiny tiny number of people who earn what I earn or higher it wouldn't make much difference to our ability to maintain our AAA rating and infact it would deter people. I was reading the FT today, interesting article about some company or hedge fund who has made 19% profits when many have made negative returns... great, they are doing well for their fund closed to new investors... and then I get to the end.. last year they relocated to Switzerland. I was in Zug last year on business. Their tax rates are tiny. I could do a lot of what I do from Zug and I could ski more. I remember when my father an NHS consultant was paying 60% income tax (he wasn't rich and had no private work then in the 70s) plus 15% more on investment income. At that point tax was so high people left the country and then less money is made to keep the poor. We can't get back into that situation again just because the poor are jealous of the rich.

More more you tax the rich the less money there is for the poor. When we nicely simplfied tax to two rates 40% and 20% odd it meant a lot of people did come back/ gave up legal tax avoidance and the tax take went up.

Anyway the short answer is that the rich are paying more than the rich in terms of more tax and more pain and it's unfair for this report not to include the previous changes which are part of this too.

Not that I have any personal ideological problems with income gaps anyway. As long as asolute povery levels enable people to eat and be housed then I have no moral difficulty with the rich earning an awful lot more.

It's daft to suggest that, simply because VAT isn't added to food, that food prices aren't affected.

The cost of producing and transporting food is affected, the resultant costs are passed onto the consumer.

And poor people still need to buy washing machines, fridges, beds, sheets, paint, pay bus fares, buy petrol, pay telephone bills, well the list is endless really isn't it?

Xenia hasn't anyone ever told you that it is bad manners to brag about how much you earn? Honestly, being rich and having some class are clearly two very different things.

I don't think Xenia was bragging, she was just making some points which are uncomfortable for a lot of people.

I remain to be convinced by the argument that all the rich will up sticks and move if their tax liability increases. Some will, some won't.

Our population is very fluid anyway, people leave, people come.

For those who choose to go, there are always a good few others ready to step into their shoes.

It does seem to demonsrate an enormous sense of ego that a handful of people claim to be supporting this country almost single handedly. To my mind, this country is built and supported by the vast number of ordinary people earning ordinary wages, after all, it is they who enable the 'haves' to have so much.

I very much doubt our whole world would come crashing down if Michael Caine and Phil Collins packed their bags.

People have already gone to Zug and other places and it's not the individuals who go which matter at all - it's the fact they move a load of other people offshore too so it has a cumulative effect. But yes even if they didnt' move off shore if we got upper tax rates back to 80% or more it would reduce the tax take so although it would make the poor happy it would mean their benefits would be cut even further and I doubt they would find that very much fun.

Heard an interesting piece on Womans Hour on Radio 4 a while back, saying when the Swedes had a financial crisis, women used it to their advantage to campaign for their human rights. It's no accident that they have 50% female representation in parliament or good childcare provision or good maternity and paternity rights - it's something women argued for at a time of crisis.

Shame we can't do something positive and progressive here instead of just slipping back into being run by Tories who glory in being the nasty party and hitting the poor.

Is Xenia Mrs Moneypenny?

Why does being in a financial crisis help women campaign for better working conditions? At the moment, unemployment is set to rise so it doesnt really matter if a lot of women don't work. Wouldn't a better time to campaign be in the middle of an economic boom when companies are complaining that "we just cant get the staff"?

I think Xenia has a point. Yes, the UK population is very fluid but all people are not equally valuable in terms of tax generation. There's no real reason for a super high earner to move to the UK vs other countries. However, more to the point, there just aren't enough rich people to tax to avoid spending cuts. If you earn over £40k that puts you in the top 10% of the population- not exactly superyacht territory. I think only about 1% of the population earns over £100k. Top rate of tax is already 50%. How much higher can you really set it? Should anyone be giving more of their income to the government than they keep themselves?

piprabbit THANK YOU for explaining it to me in such an easy to understand post

Actually everyone has explained it all really well, thanks!