VAT cuts and increases: having it both ways
The thing about the government’s ‘secret plan‘ to increase VAT to 18.5 per cent in 2010-11 is that, if you complained about how lame and ineffectual the cut to 15 per cent was, surely you don’t get to to be outraged about a future rise to 18.5 per cent.
If the cut took minimal amounts off consumer prices, doesn’t the same applies in reverse to a three and a half per cent (one percent on today) increase? We’re talking tiny amounts added to the prices of VAT-liable goods. Some of the same people who complained about the piffling amounts of individual savings earlier this week are now whining about piffling amounts of individual increases.
A 2.5 per cent decrease isn’t going to drive people to the shops, so a three and a half per cent (one percent on today) increase isn’t going to drive them away. Hardly a ‘a secret tax bombshell‘ and yet Cameron, Osborne and attendant cutting and pasting hangers-on are jumping up and down as if mater and pater had docked their pocket money.
If only they’d this much fuss over far more impacting and important issues. Yes, yes, well done for spotting it and everything Holmes and Watson, but get over yourselves for God’s sake.
Posted on November 26th, 2008 at 7:52am under Eye Catching Initiatives, New Labour, Tories
You are absolutely right, of course. It’s pretty insignificant. Particularly compared to what Darling decided to go with instead – NI increases, rather than VAT.
I’ll take a VAT rise to 18.5% (with a net effect on prices of just +0.8%) over the changes in NI contributions any day.
Firstly, the VAT only applies if you chose to buy something whereas the NI increase is unavoidable. Secondly, our family would need to spend over £50k on chargeable products and services every year to pay the same amount in VAT as will be deducted in additional NI contributions.
Of course, it becomes even more irrelevant when you see people buying stuff on credit and being charged at 16%, 18% 22% for the privilege.
The extra NI only applies to income over the higher rate threshold, shirley?
Holmes and Watson
Perhaps Holmes and Yo-Yo would be more their style.
There are two reasons why this is a tax bombshell and a shitty thing for the chancellor to be planning – and the second reason does make the up/down change asymmetrical, contrary to your argument:
Firstly: If the public know they are be taxed more in the future, then the present cut does no good whatsoever as they will instead start to save, to be ready for that future cost. They are not as stupid as the chancellor believes. Worse – the change damages small businesses who either suffer re-pricing and till reprogramming costs, or get damaged customer relations by admitting they cannot pass on the change.
Secondly: The VAT reduction is for a short, defined, period of time. But when VAT is raised, do you really believe it will be held high for only the same period? Not bleeding likely – it will stay up at 18 or 20% once there, as another stealth tax.