Newspaper article The Journal (Newcastle, England)

Top Economist Raps Brown's Cut in VAT; It's Not a Good Idea, Claims Foreign Expert

Newspaper article The Journal (Newcastle, England)

Top Economist Raps Brown's Cut in VAT; It's Not a Good Idea, Claims Foreign Expert

Article excerpt

Byline: James Tapsfield

ASENIOR economist raised doubts over Gordon Brown's pounds 12.5bn VAT cut yesterday - branding it "not a good idea".

Olivier Blanchard, chief economist at the International Monetary Fund (IMF), insisted it did not give consumers a real incentive to spend.

The comments, in an interview with a French newspaper, were seized on by the Tories as lending weight to their argument that the move will not be effective.

David Cameron has also warned that the UK cannot afford to borrow to provide for the temporary 2.5% cut, which is due to remain in place until January 2010.

Mr Blanchard reasserted the IMF's backing for fiscal stimulus packages, and suggested they may need to be larger than the 2% of national GDP it previously recommended.

However, he questioned the effectiveness of the British policy, insisting: "Temporarily cutting VAT, a measure that was adopted in Great Britain, does not seem to me to be a good idea ... 2% less is not perceived by consumers as a real incentive to spend."

Shadow chancellor George Osborne said: "This is Gordon Brown's nightmare before Christmas. One of the most respected and senior economists in the world has just said that Gordon Brown's temporary VAT cut, the centrepiece of his plan for the recession, is not a good idea.

"The recession is getting deeper, and Labour is bankrupting Britain again."

The VAT cut, announced by Chancellor Alistair Darling in his Pre-Budget Report, has previously come under fire from senior German politicians.

But Mr Blanchard also singled out Germany for criticism yesterday, insisting it must join with other EU countries in offering a significant fiscal stimulus.

"The coming months will be very bad.

Halting this loss of confidence, providing stimulus and, if necessary, replacing private demand are essential if we want to prevent the recession from becoming a Great Depression," Mr Blanchard said. …

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