VAT cut confusion redux
I have to confess to still being confused by this VAT cut lark. VAT doesn’t apply to food so there’s no saving there for the consumer. Duty is rising on alcohol, tobacco and petrol so no help there either. I really do wish Alistair Darling was explicit on what he wants us to spend our money on this Christmas. Traditional elements such as the turkey, booze, fags and driving to see the relatives aren’t affected by the cut – with those last three, quite the opposite.
Jim Bliss in the comments here says ‘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.’ And over at Liberal Conspiracy, Unity says: ‘There’s more to cutting VAT than just a few quid of that plasma screen TV you’ve been eyeing up as a christmas present for yourself [...] a cut in VAT might filter into and down the supply chain and lead to lower consumer prices.’
Unity’s a good lad so I’m prepared to accept he’s right. It’s just that that’s not how the cut’s being sold by the government. At all. No offence to Unity but isn’t it Alistair Darling’s job to explain it rather than him? This cut was leaked and billed as the kick up the arse high-street shoppers needed to open their wallets and purses, not as some jam-tomorrow business-to-business trickle down.
It was billed in all the papers and by Darling himself as immediate economic triage not a longer term palliative. Why? The spin has quite clearly failed. The coverage today has largely derided the government’s reasons for a two percent cut in VAT and therefore its effect on the economy. It’s also interesting to note that Darling’s promises of one-off payments for pensioners and increases in child benefit don’t kick in until January, a month after most recipients would find it useful (if Darling’s reasons for the VAT cut was to instigate a larger than expected seasonal splurge).
Posted on November 24th, 2008 at 7:59pm under Eye Catching Initiatives, New Labour
| Related posts... • Let them eat Wiis • Atomkraft #1 • The long and the short of it |
• Permalink • Trackback • Subscribe |
|
|
|
• 4 Comments |
The disparity between my pre-statement riff on VAT and Darling’s sales pitch stems from the one piece of information I didn’t have when I wrote the first half of that post, the 2p hike in fuel duty, which wasn’t leaked in advance.
Without the rise in fuel duty, the VAT reduction would filter down into lower prices on foodstuffs and other zero rated items as reduced transport overheads but as things stand that’s gone by the board as, on current fuel prices, the combination of the VAT reduction and fuel duty hike results in a slight rise in the cost of unleaded and slight drop in the cost of diesel (around 0.2p per litre) but even that will vanish if the oil price drops any further.
Actually, unless I misunderstand things, the VAT increase means an increase in transport overheads. Companies can claim back VAT on fuel, but not fuel duty, so the effective price they pay per litre has actually increased by 2p per litre.
The government’s response to the meltdown has been a continual process of spin and spin again. The bailout to the banks was originally sold as getting the financial system moving again. But then it turns out the billions were merely to stabilise a near terminally ill patient, not to help them lend us more money (which is probably a good thing, cheap and easy credit is part of the problem). Now the VAT cut which was spun as helping us the consumer, but more realistically will maybe help the small retailer who won’t pass the cut on. Oh, and printers who’ll now be getting orders to print loads of invoices with “includes VAT at 15%” to replace all those refering to the old rate (which will be mothballed for 13 months).
Now there were some opportunities for positive action yesterday, all of which were missed. Darling could have announced the scrapping of ID Cards, the Trident replacement and the NHS computer system. Huge savings on unpopular and unworkable or unusable projects.
But instead we got a VAT cut that doesn’t affect food or domestic fuel. And an increase in duty on petrol/diesel, alcohol and tobacco to offset any savings. A rise in duty that is permanent, so there’s a 2.5% increase already inked in for Jan 2010. Assuming the headline rate of VAT isn’t increased beyond 17.%
And don’t expect a balanced budget in 2015/16 either. Labour wouldn’t be capable of achieving the necessary cuts in public spending. And the Conservatives will either muddle along ineffectually or resort to the worst excesses of Thatcherism, but with no financial services sector to bail the economy out. Until we start making “things” rather than insubstantial and intangible products and services, we’re going to witness economic contraction until the mid 2020’s.
And it is worth noting that inspite of FDR’s New Deal and WW2, the Dow didn’t recover its 1929 pre-crash position until late 1954. And in 1932, was lower than at any time in the 1800’s.
I don’t know why Brown didn’t reverse a Tory tax rise (introduced at a time when they were scrabbling for revenue themselves) and remove VAT from building work (it’s levied on all improvements – everything except new build).
It would help the builders – and people usually have to buy things to go in the extension/loft conversion. Plus, bricks, plasterboard and mortar are some of the few things we still produce in the UK.