VAT a taxing issue!

[TheAnimus]

So with Ed Balls saying that Labour would cut VAT back down to 17.5%, I can't help but think why?

As VAT goes, its an incredibly fair attempt at taxing only luxury items, sure lots of things fall throw the cracks (sanitary towels for example) but on the whole, its rather decent.

So I just can't see the notion that it will stimulate growth. During the last Labour governments temporary cut to 15% even the German Chancellor was mocking us, something along the lines of "Of course lots of people won't buy the DVD player at £34.99 but will for £34.29".

The thing is, changing VAT has quite a cost for small businesses, plenty have awful software systems with the VAT hard coded, thou this is bloody great for those in the bespoke software racket, like me!

As a result I can't help but feel this is ideological by the Labour party, rather than a genuine attempt to generate growth. The last expensive purchase I made (new TV) I can't imagine thinking, oh no, its £715 if only it was £699 instead. It also doesn't effect most food stuffs.

As most retailers round their prices with VAT included anyway, I also don't see this resulting in much in the way of a downward shift on low value items.

So please someone who understands were they are coming from please enlighten me, because I can't see how cutting vat by 2.5% could possibly help with growth generation....

[kalniel]

I wouldn't worry about it - he's not in a position to enact such a change, and I doubt he ever will be to be honest.

[scaryjim]

Reduction of VAT? No thanks.

Overhaul of the VAT system to rebalance the luxury and essential items list so it's actually the fair and progressive tax it was meant to be? Hell yeah!

I think as taxation systems go consumption-based taxes are probably the fairest. What VAT needs is an overhaul - I'd personally like to see a tiered system where *everything* falls under VAT jurisdiction, but with essential items at a zero rate, then stepping up through non-essential items that still aren't luxuries (crisps, choccie bicceis, Jaffa Cakes ), luxury items, and then perhaps a top-end bracket for blatant status symbols, with an increasing percentage on each bracket. That way the rich would pay more, both in percentage terms and in absolute terms, for their big expensive cars and yatchs and what have you, and normal people would pay less for their crisps and choccy biscuits.

See, it's simples

[chuckskull]

I wholly support cheap choccy biccies and crisps.

I think it's just PR nonsense. It's just the other side of the coin to the American tax increase from 35% to 37% or whatever it was on millionaires that has Fox predicting the end of civilisation as we know it(again). Actual difference to peoples lives is near unnoticeable but it gives something for everyone to argue about instead of addressing real issues, not even the real issues with the tax system. The tax code has become the 21st century Nero's fiddle.

[shaithis]

No VAT on Jaffa Cakes please! Do not make the goverment waste more money on that.....

[scaryjim]

No VAT on Jaffa Cakes please! Do not make the goverment waste more money on that.....

I'm sorry, but cakes with chocolate on are every bit as luxurious as my packet of monster munch Besides, as long as the rule changes for all cakes Jaffa can't really complain, can they

[Terbinator]

The increase has projected income of an extra £13bn over 5 years as well hasn't it [I think, last time i looked into VAT and its figures was when the increase came in]? I say keep it.

[aidanjt]

VAT doesn't deter consumerism, it merely punishes folks for keeping the economy going, grossly inflates the cost of living, and erodes ordinary people's quality of life. Scrap all other taxes, and replace it with a flat, uniform income tax, for both companies and people alike, fire all the tax men, leave income tax evasion a criminal matter for the police to investigate. And leave people to do whatever the hell they want with their disposable cash without fascist meddling.

[BobF64]

Increase VAT, apply it to ALL goods, and reduce income tax instead.

There. Done.

Income tax is stupid, people can evade it, tax on things you buy is far less avoidable.

[TheAnimus]

Income tax is stupid, people can evade it, tax on things you buy is far less avoidable.

Indeed!

Its also on services too, so if the government legalised things like hookers & drugs, they could earn even more!

I do remember thinking, back in a previous life when I was working for a hedge fund, that because 90% of the really rich guys were all non-dom, they would get much more tax if they put a 98% duty on cocaine, and allowed branding. In the same way that a kings road bar will serve stale larger for £15 a pint as its imported. They could also sell cocaine for the connesour!

[Saracen]

....

So please someone who understands were they are coming from please enlighten me, because I can't see how cutting vat by 2.5% could possibly help with growth generation....

It won't help, not to any significant effect, and the points made above, including by yourself, are dead on.

It's a tax imposed, by and large, on non-essentials. The effect on the end-user price those things that we need to buy is minimal. It's not charged on rent/mortgage payments, the rate on domestic fuel (gas/elec) is 5% and not affected either by the rise or suggested cut in rates. Most foodstuffs are zero-rated. The effect on my food bill, in the last few months, is tiny. If it hadn't gone up, I'd be able to afford, maybe, an extra pint of beer at the local pub. Not every week, but once. So, on £1000 of expenditure, the VAT rise has cost me under a fiver. And that is not an estimate.

The only exception to that is petrol, where it does bite, but even then, the real killer is duty on petrol, not VAT, and Ed Balls is part of the team that loaded extra duty onto that right before the election, that the incoming government then cancelled before the last announced rise came into effect, so Ed Balls can't exactly claim to be consumer-friendly on petrol.

All this suggestion from Ed Balls is is cynical, populist political manoeuvring designed to try to put pressure on the government, not to help the economy or the consumer. If the government refuse (as they no doubt will), it helps Balls try to portray Labour as on the public's side, 'cos they want to give money back and the nasty government refusing, and if the government do it, Balls will claim it's his idea and that the u-turn shows government weakness.

In other words, it's all simply political posturing by a party desperate to try to appear vaguely relevant (which, at the moment, they aren't).

Oh, and one more thing. If, just if Osborne was thinking about doing this, Balls going on about it will pretty much kill any chance of it happening stone dead, for the same reason .... Osborne is as aware of political posturing as Balls, and won't give Balls any credit for an idea that, even if it won't actually work, might be popular.

What this boils down to is that the Labour shadow team are desperate to appear to be doing something, that this idea is something ... anything.

Labour are almost entirely irrelevant right now, until an election gets close. Nobody really cares what the two Ed's think or say, and they're having difficulty getting the press to give a hoot either. The real opposition, right now, is the back-room one going on in constant negotiations between the Tories and the LibDems and Labour don't like being up-staged by Clegg, Cable, etc, because for the first time in a very long time, that the LDs think and do has a real effect on actual policy. Labour are the party in third-place in the "interesting" stakes, and it's a distant third at that. This will change when an election looms, of course, but they've got about 18 more months in the wilderness of political near-obscurity until that happens, and they need to do something to get their faces on TV news slots and generate column-inches on press ink. I'm of the opinion Balls would dance the lambada in a punk tutu, handing out free fivers from his personal bank account, if he could generate a headline or two by doing so. And doing so would have about as much relevance to the economy, or to policy, as this VAT suggestion.

[Saracen]

Increase VAT, apply it to ALL goods, and reduce income tax instead.

There. Done.

Income tax is stupid, people can evade it, tax on things you buy is far less avoidable.

That's really helpful for the very poorest (*), isn't it? Currently, they pay little or no income tax, as they have a minimal or zero income, so there's nothing there to reduce. But you want to slap 20% on their food bill even if VAT stayed at 20%, and more if we "increase it".

Still, I suppose if we starve the really poor to death by pricing them out of buying food, at least we'll cut the welfare bill.



(*) Very poorest = those reliant on minimal benefits, like unemployment, those living on state old-age pensions, those whose income are basically minimum wage, etc. Oh, and probably many students, too. Etc.

[aidanjt]

Income tax is stupid, people can evade it, tax on things you buy is far less avoidable.

I've often coincidently 'evaded' Irish VAT by buying from overseas. The difference is local income is traceable, and not paying it is prosecutable. Besides, by simply ripping up all previous tax laws and just fill it in with '*all* income is taxable by f(x), no exceptions'. You destroy every tax loophole there ever was, which are overwhelmingly the primary tax evasion mechanisms, and utterly dwarf plain dishonest tax filings.

[oolon]

Didn't labour try a 2.5% tax cut on VAT?, I believe it didn't do anything to stimulate buying (except bring forward spending just before it expired), it increased price inflation as retailers didn't pass on the cut, and caused retailers lots of problems repricing everything, finally it cause the exchequer to have even less money... all in all... BIG FAIL! This is not new thinking from Labour this is just the same failed idea said again.

As to Ed saying we need to grow our way out of it, yes perhaps we can, borrowing money does indeed make sense when the return on investment is more in the long term than the cost of the loan, there is no case study for this ever being effective. The problem is we (as a country) have bought more things than we should have and our credit card is now maxed out. This would be a very big gamble, and if it did not pay off we would all be worse off. What does make sense is for the British government to try to source things in the UK, as unlike a business they would get a cut of all the money (recycled back through taxes), and perhaps have less unemployed people. Clearly if the UK price is significantly higher than an overseas one, then they should not win it however. Labour awarded contracts to the lowest better rather than the ones best for the UK economy.

What Labour did do is sell so much gold it put a dent in the market and at a price 1/6th of its current level, and spent the money on two aircraft carriers which would be sunk in minutes given a real war as we do not have the supporting ships required to keep them from being attacked, as they have not steam launch catapults, the UK governement going to electromagnetic ones, which don't exist yet, means they could not even launch planes even if we had ones that could work from it (BTW the old ships were not even "aircraft carriers" they were through deck cruisers, which required special planes, rather than a carrier than has a special launch system or a REALLY big deck).

This kind of thinking is why the military over spends as they buy vapourware, rather than products that exist now, we cannot afford to have best military, so no need to have bleeding edge equipement, we need to just accept our second rank status, and get on with something more important... like keeping the people who live here feed/housed and hopefully happy. What we can do is make this the place businesses want to be, and to be frank I don't really care what the do, so long as it is productive for the country.

[aidanjt]

yeah they cut it to 15% for like, what? 6 months or whatever it was, then slammed it up to 19% shortly after.. and all it did was cost businesses an assload of money to get all their PoS sorted out. A complete waste of everyone's time. Tinkering doesn't fix fundamental fiscal problems.

[peterb]

<---snip and spent the money on two aircraft carriers which would be sunk in minutes given a real war as we do not have the supporting ships required to keep them from being attacked, as they have not steam launch catapults, the UK governement going to electromagnetic ones, which don't exist yet, means they could not even launch planes even if we had ones that could work from it (BTW the old ships were not even "aircraft carriers" they were through deck cruisers, which required special planes, rather than a carrier than has a special launch system or a REALLY big deck).

Well I certainly don't disagree with the first part of your post, but I hasve to take issue with this.

The first of the Queen Elizabeth class of carrier won't have a steam catapult at build, but the second one will. And the aircraft it wuill carry are a part of its self defenxce capability, as well as its offensive capability. We still have a fleet of nuclear powered submarines the threat of which would also provide a defence capability for a carrier, as well as providing an offensive capability in its own right.

The Invincible class carrier was an aircraft carrier - it carried fixed wing aircraft, but was designated a through deck cruiser for political reasons. The harrier jump jet was developed for VSTOL (Vertical/Short Take-Off/Landing) operations from forward operating bases, but was ideally suited for fixed wing operations from the invincible class, especially after the 'ski-jump' was fitted.

Albion, Bulwark and Ocean are also aircraft carriers, but only for rotary wing, and Albion and Bulwark are designed to support amphibious/littoral operations.

And I have just taken this thread well and truly off topic