The Government signalled forward the VAT announcement, as it has with everything in the plan. It states it is not bringing in any VAT increase in 2011. The economic reason for signalling tax increases forward has always been to change behaviour, for example, people will go out and buy the washing machine, fridge or car before the increase comes in. What we need more than anything else at present is consumer confidence to get things moving again. If a market economist was looking at this and saw we were increasing VAT, the advice would be to change the two points at the same time in 2012, which would increase it to 23%, and to announce this now to try to get consumption going in 2011, when it will be badly needed and when the Government is predicting a growth rate of 1.75%, whereas in 2012 it is predicting a growth rate of 3.5%. To do that would get consumer spending moving.

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