Anybody else not exactly feeling fiscally stimulated?
Let me see if I’ve got this right. If we get the 2.5 per cent VAT cut – from 17.5 to 15 – in the pre-budget speech today as massively and widely leaked by the headline-desperate government, that means on a £100 trolley of VAT-liable shopping (food is exempt from VAT so don’t expect the food bill to fall), you’ll be a whopping £2.50 better off.
That means, if I spend £200 on stuff other than for feeding my family, I’ll have saved enough for a sixpack of Stellas, yes?
Posted on November 24th, 2008 at 8:14am under Eye Catching Initiatives, New Labour, The coming apocalypse
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I don’t get it either. All retail prices are published including VAT so the direct result of reducing VAT to 15% is to increase the amount going to the retailer. Only if the retailer reduces all prices across the board to reflect the VAT reduction (incl the cost of P&P) will it make any difference to the shopper.
Trade sales, where the prices are always displayed net of VAT are a different matter and will immediately reflect the VAT reduction.
With heavy discounting going on in any case, there is no reason to believe that the reduction in VAT will go straight to the consumer as a direct saving. Having fixed a price point at, say, £9.99 (reduced from £14.99) are we to believe that the retailer will now re-price to £9.78 in order to reflect the reduced VAT?
We will see.
Mike, when I saw this item on the news my first thought was that it was not being introduced as a benefit for shoppers; but for retailers. Because most shops will not reduce their prices as a result of this and will simply pocket the extra profit. In fact, I’m pretty certain that is precisely who this is being aimed at… shop-owners.
Which is a valid enough thing to do, I suppose, if you are trying to help out “small businesses”. I’m just amused — though hardly surprised — it’s being spun as a measure to help the general public (or ‘the consumer’ as we are now officially known).
Obvious measures to help the real poor might include an increase the minimum wage, or perhaps an increase of the amount paid in state benefits. Reducing sales tax by a small amount will really only help retailers (or those who are spending quite a lot in shops that do pass on the VAT cut).
Here in Ireland the VAT rate is 21%. So even though this UK cut is largely an illusion from the point of view of the average shopper, I guarantee it’ll drive even more people north of the border to do their Christmas shopping (which will have a small, but measurable, negative effect on the Irish economy. Yay Gordon!)
I completely agree. Vince Cable said pretty similar things this morning on breakfast TV.
Truth is Brown/Darling et al don’t have any real idea how this will play out. After all they have abandoned one economic model used for years for an even older one which was supposed to have become discredited. They all have a very simplistic, hydraulic notion of the economy but recent events have proved that it ain’t all about getting the levers and dials in the right places.
We shouldn’t be too harsh on them though. After all, they are only third rate lawyers at root.
Books are also zero-rated, and condoms are (I think) at a lower rate, so…meh…just, well, meh…
Nope. Not even that much. On an £117.50 trolley of VAT-liable shopping you’ll be £2.50 better off. On a £100 trolley, you’ll be £2.12 better off.
See? Even the maths is all over the shop.
Quibbling over the actual benefit to people is missing the point. All that is necessary is that it makes the government look Strong and Decisive in the Face of Crisis. Frankly, I think they missed a trick by not giving the whole initiative a snappy title. Like Pennies for Proles. The People’s Pittance. It’d go down a storm, I tells ya.
Pennies for proles it may well be but for the purchaser of a £50k car it’s a saving of £1,250. A £5 million work of art? That’s £125,000 in your sky rocket, ta very much.
Ooooh, let’s hit the rich, Gordon!
[...] Bliss in the comments here says ‘when I saw this item on the news my first thought was that it was not being introduced [...]