Now we’ve established the principle, let’s cut all taxes

As we are told:

Normally households pay 5% VAT on their electricity. This is applied once the daily standing charge and cost of the units you have used have been added up, so the actual sum you pay will vary from bill to bill.

From 1 October – the day the regulator Ofgem’s new price cap on energy comes in – there will be no VAT on the electricity you use if you live in Great Britain. This will cover the winter months, which typically bring the highest bills of the year.

Using figures based on a typical household’s energy use, the government says the saving will in effect reduce the annual price cap by £45. Your actual savings will depend on your usage.

So, cutting taxes reduces the cost of living, does it? So, that’s the principle:

Andy Burnham urges cabinet to examine ‘all possible ways’ to tackle cost of living crisis

And there’s the aim. So, we know what to do now, right? Cut all taxes so as to continue to reduce the cost of living. How excellent, we love it when a plan comes together.

This does then have a further implication. It is the spending itself which is the taxation. What is spent will be paid for somehow, through tax, borrowing which must be repaid or if we believe the MMT lads in future inflation - or tax to prevent that inflation. So, that means that to reduce the cost of living we must curb - radically we’d say - government spending.

Note that this background logic is not some invention by us, this is the declared policy of the current government. Reduce the cost of living, tax cuts reduce the cost of living, therefore….

Shall we say cut spending by 20% of GDP, taxation by 15% or so? Just to give ourselves a useful and achievable target in the short to medium term?

Anyway, how excellent that we’ve now got a Cabinet being given the correct instructions and we look forward to the efficiency with which they carry out their orders. They’re welcome to reach out if they desire any filling in of fiddly detail here.

Tim Worstall