Tuesday, 22 June 2010

Budget Surprise: No Rise in VAT

There is always a surprise and this will be it today. Raising VAT is a crap idea, pushing up inflation just as it is about to come down and affecting the least well off the most. Surely when reality strikes this is one that will be billed as the 'look what we have not done, how generous are we to the plebs' moment.

That is my guess - come back in 2 hours to see if I was wrong.

UPDATE - FAIL. They did it...

18 comments:

Budgie said...

I tend to agree with you. But what about a 20% (or higher) rate for a few 'luxury' goods?

Steven_L said...

Expecting high carbon cars to get hit again here and folk who voted tory for the fuel duty stabiliser to be disappointed.

Reckon insurance tax is going up too, would hate to be a 22 yr old boy racer with a scooby on ticky right now.

Bill Quango MP said...

Agree with Budgie: The exemptions will take a knock. Takeaway food..Possibly postage from free to 17.5%,

Budgie said...

Oops

Steven_L said...

You should have got on the TUC Touchstone live blog. Danny Blanchflower was on there and I got to accuse him of talking bollocks to the point he had to acknowledge I was :)

Made my day!

Blue Eyes said...

I disagree with this notion that VAT is regressive. Food and children's clothing - zero rated. Energy - 5% rated.

Anyone can avoid eating in restaurants, buying booze, flat-screen tellies, etc. if they want to.

If a VAT rise encourages people to live a bit more within their means then in the long run it is A Good Thing.

Nick Drew said...

BE I have just name-checked you live on air ! and relayed the point you made above

Blue Eyes said...

Great stuff!! I await bombardment by lefties!

Mark Wadsworth said...

People who say that VAT is regressive make the fundamental error of assuming that 'VAT is borne by the consumer' which is mathematically impossible.

It is in fact borne by VAT-able businesses.

Mark Wadsworth said...

Even if it were only imposed on 'luxury goods' (as defined) it would merely affect the incomes of people who manufacture and sell 'luxury goods'.

the beast of clerkenwell said...

Dont pay tax
Own nothing in this country
Works for me

Bill Quango MP said...

Heard the BE comment! Nice one.

VAT is just a tax. It cannot be avoided except by cash in hand.

As for not hitting the poorest.. hmm! Don't buy it for a moment. VAT hits everyone, just that the richer buy more expensive items, so pay more.

Sweets, take away food, toilet rolls, soft drinks, soaps and washing powders fuel, medicines,fruit juices, washing up liquid, toasters, diy items,cosmetics, mobile phone top ups, toothpaste, toys, video games, bottled water, broadband, phone bills...

Are these just for the rich?

VAT can't be avoided.

Blue Eyes said...

BQ, I don't "buy" other people's arguments - I am able to formulate them myself thank you very much!!

Are you talking relative poverty or absolute? Take away food? Easy to avoid if you are genuinely poor. Cosmetics? Mobile top-ups? Broadband? Bottled water?

Serious essentials in times of strife. People who are genuinely poor don't have Sky TV, cars, multiple phones and laptop computers. People are genuinely poor don't drink bottled water or get pizza delivered because they are too lazy to cook from fresh.

Blue Eyes said...

"It cannot be avoided except by cash in hand."

Or by not buying something discretionary. 90% of what you buy is discretionary.

Budgie said...

Mark W said: "[VAT] is in fact borne by VAT-able businesses."

Tosh. I have a business. I pay VAT. I charge VAT. Because I claim back VAT paid out, only the difference goes to HMRC. It costs me nothing, except the book keeping. My business customers are the same. Only the public cannot claim back VAT. The public are the end of the chain: only they pay VAT.

CityUnslicker said...

VAT is very inflationary - look at its effect his year. Talk all the theory you want to me, Inflation is at least 100 basis points above where the BOE thought it would be and a big chunk of this is down to the VAT rise.

Mark Wadsworth said...

Budgie, look at the maths and logic.

The total VAT you pay = the VAT you charge = 7/47 of your 'value added' (or gross profits). We can ignore input VAT that you pay to suppliers and then 'reclaim'

Even if you make all your supplies to VAT-able end-suppliers, your output VAT may be their input VAT, but they in turn have to pay to HMRC 7/47 x their 'value added' (or gross profits).

And the end supplier cannot 'pass on' the VAT because end-consumers have limited budgets. If the VAT rate goes up, then total VAT-inclusive spending by end-consumers does not go up but simultaneously the total VAT collected by HMRC goes up.

So the end supplier has less net profit or money to spend on wages or dividends or inputs (whether VAT-able or not), and he reduces the amount that he spends on dividends, wages and your services accordingly.

The fact that all politicians claim that this is a 'tax on consumption' or 'is borne by the consumer' or 'is regressive' is irrelevant. The technical term for this is 'lying'.

Or you might as well argue that increasing the NMW increases the incomes of low earners, that's not true either.

Budgie said...

Mark W - mathematically 7/47 is just 0.175/1.175 - so what?

Assigning VAT collected from the customers to "gross profits" is itself illogical, misleading and completely incorrect. My financial accounts show turnover, cost of sales and gross profit without VAT for that reason.

It is a fact that the public bears the VAT completely because they cannot claim VAT back, unlike the b2b.