Thursday, December 04, 2008

Now we know why Gordon cut VAT

As opposed to, say, income tax. Bank of England statement today --

The direct effect of the temporary reduction in Value Added Tax will also lower CPI inflation through much of next year, with a corresponding increase in inflation in 2010.

He needed the Bank to be able to demonstrate lower inflation for 2009, to be able to cut interest rates more. He wouldn't have been able to do that with a cut in income tax, which would have no impact on consumer prices.

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