Balls calls for emergency tax cut
Reducing the sales tax back to 17.5% for a period would help to stimulate consumer spending, bring down inflation and boost job creation, he argued in a keynote speech. Mr Osborne raised VAT to 20% from January.
"The question is not the cost to George Osborne of paying for this temporary emergency tax cut, but the price our country will pay if he carries on regardless," he said.
In an address to the London School of Economics, Mr Balls accused the Chancellor of "keeping his fingers crossed and stubbornly ignoring the economic evidence" that his plan is not working.
He drew a parallel between Mr Osborne's refusal to produce a "Plan B" with the ill-fated decision by the Conservatives to enter the European Exchange Rate Mechanism (ERM) in the 1990s. Unlike his predecessors ahead of the UK's withdrawal from the ERM on Black Wednesday in 1992, the Government has the option to change course, Mr Balls said.
The TaxPayers' Alliance, which campaigns for lower taxes, gave a cautious welcome to the VAT proposal - noting it did not want cuts now to fuel steeper rises later. But director Matthew Sinclair suggested it could be paid for by cutting overseas aid budgets or the high-speed rail project.
Tom Clougherty, executive director for the free market Adam Smith Institute think-tank, said Mr Balls was engaged in the "pure politics" for which he criticised Mr Osborne.
"A temporary cut in VAT would do little to boost confidence or growth," he said. "People aren't fools - they know that you can't just borrow more, spend more, and raise less without it coming back to bite you further down the line.
© 2011 Press Association