I have delayed writing about the Pre Budget Report because I was so angered by its content. Not so much for the state of the public finances, which most people expected, but the fact that we have yet another missed opportunity. The Gordon Brown touch was everywhere, because once again, it was about perception not reality and could never live up to its promise.

The principal part of this stimulus package was the reduction in VAT, which is estimated to cost £12.5bn over a period of one year. Which is what I shall concentrate on. Now, I would like to know how the government came up with a figure of £5bn, because we all know that sales are down, so is the estimate based on historical figures, or current sales? This is important, because the suggestion is that this £12.5bn is an injection of real cash into the economy, so a smoke and mirrors approach to presentation would just be a con and unforgiveable. Furthermore, if I had £12,5bn to spend I would have reduced direct taxation by 2.5% for a year not VAT.

VAT is a purchase tax, therefore in a sense, it is a voluntary tax and as a consequence no-one will feel any richer as a consequence of such small a reduction in retail prices. It is also essentially a luxury tax, in other words, it is added to non-essentials. Yes, I know that over the years this has been extended, but for the most part, it has to be remembered that there is no VAT on food, children’s clothes and so on. The VAT reduction would have had a direct benefit to people if it had been applied to fuel, but the government decided to raise duties to negate any benefit, they did likewise on alcohol, tobacco and spirits.

Many retailers have been offering massive sale offers, with cuts of up to 50% to tempt consumers to buy products in their stores, no doubt with differing levels of success. A reduction of 2.5% pales into insignificance set against this backdrop. Which is precisely my point, the VAT reduction had nothing to do with providing a fiscal stimulus and more to do with being able to brag about a big number, knowing full well that it would never cost as much as the forecasted figures. Moreover, it provided an excellent backdrop for the government to introduce new taxes on the basis that the ‘VAT holiday’ would have to be paid for.

Ask yourself this, if the government had £12.5bn to waste, why didn’t they put it straight into our pockets, by reducing income tax by 2.5%? A fiscal stimulus has as much to do with consumer confidence as it does ability to pay. If you want the public to feel wealthier, then the only way this can be done is by ensuring they have more  of their own money in their purse or wallet. That is tangible! But this had nothing to do with a desire to introduce a fiscal stimulus, it was only designed to con the British public into the believing the government were doing something. This will be an expensive failure because those that are in a position to buy products where VAT is applied will do so anyway and save 2.17%.  By contrast those that were not able to make the purchase will find that this 2.17% reduction will make no difference whatsoever.

Now lets take a look at another aspect of this ’smoke and mirrors’ tax con. The government has made this years increase in the personal allowance permanent and sold it as part of the fiscal stimulus. But all is not as it seems, because they had no choice. The only reason they increased the personal allowances this year was because of the last 10p tax con. They knew if they did not act to make this ‘tax concession’ permanent that they would have had a backbench rebellion which would almost certainly have lead to Gordon Brown being ousted in disgrace. Now that is almost a price worth paying!

Now here is the best part for the government. In exchange for introducing a highly questionable fiscal stimulus, in the case of VAT for just one year, they have been able to substantially increase their tax take. For example, the adjustment in duties to offset the temporary VAT reduction on fuel, tobacco, alcohol and spirits will remain in place after VAT has been put back up. So this is a very real and permanent price rise, not only that, it is worth remembering that the consumer always pays VAT on duties, yes, a tax on a tax.

Plus, they have announced an increase in National Insurance contributions of 0.5% on employers and employees. This will raise billions and is permanent! So, in comes the smoke and mirrors again, by setting this tax increase against the change in personal allowances, the government can claim that certain taxpayers are better off. But hang on a minute, the change in personal allowances was introduced because, according to the government, they made a mistake when they removed the 10p tax band, so this was only introduced to compensate for that error. In other words, it was already our money! Don’t think for one minute that this tax raising government don’t know that and so do the media, but they are so far up the backsides of the government, the media refuses to reveal the truth.

On top of this, the government have decided to introduce a higher rate of income tax and remove personal allowances for those earning more than £140k. This means that they will be £2,246.70 worse off in 2010/11 and £2,849.93 down the following year. Now many will say that doesn’t matter, because they are rich etc, etc.

But lets put this into perspective. Firstly, they already pay more tax in real terms than the average person, in fact someone earning £150k per year pays as much tax as 4 people on average earnings. Also, many, I accept not all, of these people are the very people that create employment and provide jobs for the rest of us. Often, they will have risked everything they own to set up a business which creates wealth for the country and jobs for the people. Under this government they have seen capital allowances slashed, corporation taxes on the rise, massive increases in business rates (money which is a direct taxation by the government on business) and now a much higher tax take from them in their personal capacity.

I do not and never would begrudge anyone earning those sorts of salaries where they have contributed to the wealth of this country by creating jobs and a contribution to GDP. Two things that are vital, no, absolutely essential to the wealth of every country in the world. We have already seen a number of companies moving their businesses to other countries, such as Southern Ireland, because the tax regime is so much better. Can you really blame them if they are hounded for being successful and punished with punitive personal and business taxes for creating jobs and wealth. We all need to get real, envy is a very dangerous thing and in this case, if there was an exodus of the very people that help create jobs and wealth, we would be finished as a first world country. This pre-supposes that we are not already as a direct consequence of Gordon Brown’s reckless mismanagement of our economy.

The other changes made by the Chancellor are hardly worth mentioning, because they are so insignificant… so I won’t. I will say this however, they Pre Budget Report produced virtually nothing for small and medium sized businesses. Given these account for 50% of our GDP and employs 12.5m people, this was a massive mistake and one we shall all be paying for over the next few months.

Never was there a greater need for an honest fiscal stimulus, but Gordon Brown could not resist conning the British public again. The VAT reduction had nothing to do with providing a real fiscal stimulus, because the affects have been so severely limited. Instead, he contemptuously used it to introduce massive tax rises, which were designed to allow him to claim that the countries tax receipts, PBR and balance sheet would not be as bad as would have otherwise been in future years. Alistair Darling even included an assumption that we would see strong growth in a little over a year, everyone knows that is justwishful thinking. Whislt no-one believes this argument it makes the government books look a little better. They have no shame.  As my old boss used to say, it is all jam tomorrow.

The most worrying aspect of all this is how many people actually fell for the biggest and most dishonest tax con in history. Gordon Brown and his motley crew make Robin Hood look like a philanthropist.