Temporarily cutting the VAT rate to 15% will cost taxpayers in the region of £12.5bn. The government's stated aims in doing this are to give consumers a little bit of extra cash to spend, in the hope that this will stave off some of the recession. Clearly, it's far to early to tell whether this has actually worked, despite what many people who are opposed to the idea think, but that doesn't make it a good use of such a large sum of money. Is there a better way to spend it to try and achieve the same aims? I happen to think so and will come on to my ideas in a moment but first, what is wrong with the current policy?
Well, disregarding a higher tax burden in the longer term, there are more fundamental problems with it. For a start, it's not exactly a fair distribution of taxation relief, is it? Those who can afford to spend the most get the most extra cash. While it's true to say that the richest are probably suffering most in the recession, there's no reason not to target this enormous pot of money more effectively. Related to this is another issue: because everyone benefits from it (and some benefit much more than others), a large percentage of people don't benefit very much, so it may not increase spending across the board.
What could be done instead? How about combining the aims above with others, particularly related to climate change? What sort of schemes would save people money, stave off the recession and help to reduce the country's carbon emissions?
Here's one such proposal. Given an average cost of £4000 (ignoring any savings related to the economies of scale) a time, how about installing solar water heating in three million homes? It would save people money (not just now but year on year in the long term), help to create jobs in manufacturing and service industries at a time when it is needed most and reduce our reliance on fossil fuels to heat water, thus helping to combat climate change. And, maybe best of all, it could be targetted at the people who can least afford to do it themselves.
Can you think of other ways to spend such a large amount of money to the benefit of the country and the environment, too?