Tuesday, 16 December 2008

An open letter to the son of the Manse (Update)

In August, I wrote an open letter to the PM about a message I felt at the time. All in all, I have been very impressed with the way the PM has conducted the affairs of the state from those dark months when everyone attempted to vilify him. It is no doubt that the political rewards are apparent.

My attention now draws to the issue of how to help people during these hard times and one particular issue has come into sharp focus: The VAT issue! The reduction in VAT from 17.5% to 15% will have minimum effect on the spending behaviour of consumers. I rather like the proposal by Mr Cameron to differ VAT payment for small and medium businesses for up to 6 months. If we discard politicking, then this will have significant benefits to small businesses and jobs, who are after all suffering the aftermath of the excesses of the Banks. I suspect the PM is aware of this in any case.

A stroke of genius

As we move into the new year and the recession starts to bite even harder, it will be a stroke of genius if the PM and his Chancellor introduces this VAT deferral scheme. The scheme might work like this:

  1. Small and Medium companies have their VAT differed for 6 months
  2. At the end of the 6 months, if the VAT are not paid, then interest is charged at the Bank of England lending rates.
The benefits of this scheme will be these:
  • Small companies will have to spend money (which will stimulate the economy) to take full advantage.
  • Government will be lending money to small business through the 'backdoor' at a time when the Banks are busy building up their reserves and are less willing to support small businesses with cash.
I suspect that this is not news to the PM. I wonder if the plan is to try the VAT reduction route first (17.5% to 15%) to stimulate consumer spending, then go down the VAT deferral route to inject some capital to small businesses. By so doing, the PM and his Chancellor would have lessened the cost of the VAT deferral scheme by 2.5%! Maybe we can start putting that saving towards the repayment of the huge debt that Great Britain PLC will be saddled with over the next couple of years of hopefully not so deep recession.

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