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The Office of Tax Simplification announced today sounded like a good idea to me. It was a shame we had to drag ministers to the House of Commons to tell MPs what ministers had told the media. But, it emerged that the Office’s leadership has simply been appointed – and one man, Michael Jack, is a former Tory MP.

It would seem that both appointments are subject to the Nolan principles;

Section 3.1 of the Ministerial Code says;

 “Ministers have a duty to ensure that influence over civil service and public appointments is not abused for partisan purposes. Civil service appointments must be made in accordance with the requirements of the Constitutional Reform and Governance Act 2010 and the Civil Service Commissioners’ Recruitment Principles. Public appointments should be made in accordance with the requirements of the law and, where appropriate, the Code of Practice issued by the Commissioner for Public Appointments.”

 Furthermore, section 1.2 of the Ministerial Code:

 “They [Ministers] are expected to observe the Seven Principles of Public Life [The Nolan Principles]”

 The OTS Framework document on the Treasury website reads:

 “The Chancellor is responsible for the appointment of the Chair [Michael Jack] and Tax Director [John Whiting] and ensuring that the Treasury and HMRC appoint appropriate senior executives to the Office’s Board”

So tThese appointments were made by Ministers and so the Ministerial code and henceforth Nolan seems to apply here. I’ve written to both the Committee on Standards in Public Life, and the Permanent Secretary to the Treasury to ask whether Nolan principles were adhered to. If this office is going to work, and really be independent, then appointments must be above question.

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This week’s jobs figures have renewed the debate about the recovery ahead. The good news was unemployment fell. The bad news was there was little evidence of any great revival in the private sector spirits.

With sweeping public sector job cuts in the Autumn, it’s now time to worry about the ‘economic death spiral’ that awaits if growth starts to come in lower than Budget projections.

We have to wait until next week to hear how well the economy grew between April and June, but Wednesday’s job figures did confirm the recovery is underway. We know slowly, slowly Britain’s output is growing. First quarter output in 2010 was £8bn bigger than the last quarter of 2009. That’s growth of about £88 million a day.

But a couple of economic reports are sounding warning notes. The IMF delivered a sharp downgrade of the UK’s growth forecast following George Osborne’s budget, knocking 0.4pc off growth projections for next year and the OECD, which has called for a clearer deficit reduction plan has also warned public sector job cuts will slow the recovery.

This flags the big risk that didn’t get much attention at Budget-time: what happens if growth turns out to be weaker than forecast?

The danger of George Osborne specifying an ‘iron path’ to reducing the structural deficit to zero in 2015-16, is that if growth is lower than expected, the ’structural deficit’ (the annual shortfall in the government’s accounts when the economy is growing at its trend rate of growth) goes up as a percentage of the annual output.

But the timetable for eliminating the deficit remains unchanged. That means more cuts – rather than another stimulus – are instantly required, with the risk of sending growth still lower. Yet, as growth plunges, the structural deficit goes up again, and more cuts are needed to hit the target. And so on and so on. The death spiral sets in.

Labour had a much more flexible approach; we legislated to halve the deficit over 4 years, but it was possible to bring in orders for a change if the economy started heading south. George Osborne’s fiscal mandate appears to have no such escape hatch.

The reason people are worrying about this now is that Osborne’s plan relies on a high risk boom in investment and export growth. The OBR is forecasting that Britain’s economy will grow by a total of £183 billion over the next 5 years. Business investment and exports account for almost £200 billion of that growth (imports knock the figure down a bit; consumption then adds more).

This is a tall order. The last time we saw export growth on the kind predicted by the OBR next year was in 1974. Only once have we achieved the rise in business investment predicted (back in 2005). Yet the OBR expects a 1974 style export performance plus a 2005 style business investment boost in every one of the next three years. The £100 billion explosion in exports forecast by the OBR is equivalent to our exports to America tripling, exports to China rising 20-fold, or exports to India rising 40-fold.

And we’re not alone. As Robert Reich wrote last week, President Obama also has an export boom in his sights.  The problem is as Reich puts it, is that as our companies do well in foreign markets, they’re just as likely to create jobs abroad – not at home.

With such long odds of the kind of growth the OBR forecasts, you might think that a Chancellor would hedge his bets a little. Do a little more to support domestic demand. But, no. Domestic confidence is getting whacked by the VAT rise and the ominous noises of huge public sector job cuts.

The tragedy is that we have of course been here before. Not just in the 1980s and 1990s, when it was said ‘unemployment was a price worth paying’ to drive out inflationary expectations, but back to the 1930s. With a hat-tip to Paul Krugman, researchers have found an extraordinary exchange of letters between J.M. Keynes and Friedrich Hayek, on the question of private spending in late 1932, in which Keynes highlights the risk of the ‘marytrs by mistake’;

“When a man economizes in consumption and lets the fruit of his economy pile up in bank balances or even in the purchase of existing securities, the released resources do not find a new home waiting for them. In present condition their entry into investment is blocked by lack of confidence. Moreover, private economy intensifies the block. For it further discourages all those forms of investment- factories, machinery and so on – whose ultimate purpose is to make consumption goods. Consequently, in present conditions, private economy does not transfer from consumption to investment part of an unchanged national real income. On the contrary it cuts down the national income by nearly as much as it cuts down consumption.”

This isn’t far off what the UK now faces. According to the OECD, the UK’s savings rate has climbed fast – from 2.2pc of disposable income in 2007 to 6.4pc this year. Martin Wolf at the FT calculates that this together with business saving is helping delivering an excess of private sector income over spending of $200 billion in the UK. With limited reasons to be cheerful, consumers and business leaders are hoarding their money.

With so little emphasis on domestic growth, the government is risking a slow growth future – and it may be British families and British businesses who pay the price.

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Last night, we set a fairness test for Coalition MPs and they comprehensively failed it. 
 
In the last few days we’ve exposed how Britain’s pensioners face an £8 billion VAT bill and how charities will be hit for millions of pounds.

Last night we gave Lib Dem and Tory MPs the chance to vote for a plan that would have protected pensioners and charities and they didn’t have the guts to back us.

It is the most extraordinary betrayal of Britain’s most deserving. 
 

All Labour MPs are being issued with details of how Lib Dem and Tory MPs in their region voted, along with a breakdown of the number of pensioners in their local authority area and region, and the VAT hit pensioners and charities now face.

We will now take the fight to the constituencies of all the Coalition MPs who voted to press on, full speed ahead, with the unfair VAT hike for which they have no mandate. 
  
We urged Coalition MPs to vote for our amendments which would have:
 
* stopped the VAT rise from going ahead until the Treasury had produced report on how it would compensate pensioners:

* saved charities from paying the extra VAT on goods and services they needed to proved deliver their “charitable non-business activities” – this includes goods and services needed to deliver services charities don’t make charges for (e.g. rescuing people or work done by medical research charities) or when the charity subsidises the cost of the service by a significant amount (e.g. disability charities providing services).

 
* delayed the VAT rise from going ahead until the Treasury had produced a report in the impact of the rise on a number of vulnerable groups and issues, including:

           
·        pensioners
·        children and child poverty
·        inequality
·        the bottom 20% of households by income
·        charities; and
·        the informal economy

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Today, I set out in the Guardian exactly what the Lib Dem’s broken VAT promise is going to mean for charities – something like £150 million more in irrecoverable VAT. First strike against the Big Society?

Below is the research and press release compiled by Ian Lucas MP and myself….

Liam Byrne and Ian Lucas today published analysis from the House of Commons Library, the Charity Tax Group and ACEVO highlighting an almost £150 million hit to charities from the government’s VAT rise.

Labour has tabled a series of amendments to protect charities from the hike.

According to figures produced by the Charity Tax Group, the proposed increase in the standard rate of VAT to 20 percent will cost the sector £143 million in irrecoverable VAT.

Charities will find it hard to absorb this increase:

According to figures from the Charities Tax Group, the rise to 20 per cent will cost Action for Blind People, one of the largest charities in the UK providing free and confidential support for blind and partially sighted people, an extra £100,000 a year.

The rise will hit smaller charities hardest:

Smaller charities, e.g. those with a total income of less than £30 million will be disproportionately impacted as VAT currently accounts for 3.6% of their income as compared to 2.3% for larger organisations with an income of over £30 million.

This is from a government that wants to encourage charities to step up to provide public services in an age of austerity as part of a “Big Society”

Instead, the VAT move will widen the disparity between large and small third sector charities, making it harder for them to compete for contracts, and creating a more homogenous sector of suppliers, which should run contrary to Government’s intentions.

Unlike charities, local authorities are able to claim back VAT. This increase in the standard rate will make it even more difficult for charities to compete with the public sector.

The Shadow Chief Secretary Liam Byrne has tabled a series of amendments to prevent the increase applying to charities’ non-business activities, until the government has a plan in place to compensate charities for their losses.

Labour’s amendments seek to prevent the increase applying to charities charitable non-business activities. Non-business expenditure occurs when charities don’t make charges (eg rescuing people or work done by medical research charities) or when the charity subsidises the cost of the service by a significant amount (egg disability charities providing services).

Charities can only seek protection from the non-business element of a charity’s expenditure because otherwise there is a risk that the European Commission would argue that the differential treatment was a State Aid.  This figure is estimated by the Charities Tax Group to be in the range of £60-£70m.

Liam Byrne said;

‘This is the government’s first strike at the Big Society. The charities David Cameron says wants to help him are now the first in line for a kicking. With the CSR, it’s bound to get worse.

“The very least the government should now is give the Commons a plan for defending charities from the £150 million hit to their bank accounts and services.

On mountain rescue services, Liam Byrne said:

“The Lib Dem manifesto promised to refund VAT to mountain rescue services, and just two days before the election, Danny Alexander said that that promise should be kept, regardless of the result of the election. Now we will see whether he will keep his word.”
Ian Lucas, Labour MP for Wrexham, who commissioned the HoC research said;

“Vulnerable people who pay for services from charities will pay more. One example is Charriotts in Wrexham, which helps disabled people to travel. Because of its success, it is about to reach the threshold to register for VAT and its customers will now pay 20% VAT. This indiscriminate rise hits everyone equally – regardless of need and the ability to pay.”

“Charities lose out to local authorities who have a special exemption for irrecoverable VAT. If David Cameron really believes in charities working in ‘The Big Society’, why is he imposing extra costs on them? His Government’s VAT rise makes the comparative position for charities worse.”

“As the Charity Tax Group has estimated, this will cost charities £143 million – all going straight into the Government’s coffers. What will this do to help charities contribute to “The Big Society”?

ENDS

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During the election, Nick Clegg unveiled a poster,  warning voters to beware of Tory plans to raise VAT.

A “Tory VAT Bombshell”, he called it.

Well, as I said in the Commons today, little did we know that just a matter of weeks later, it would be the Lib Dems who would prime that bomb and detonate it – in cahoots with the Tories, of course.

Nick’s own blog still has the poster available to download – click here to see, before he takes it down.

http://tiny.cc/bv7fg

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