The VAT Cut

[Rich]

On a personal note, I'd be very interested to hear your views on the VAT cut - what it will mean for you in terms of administration and extra costs, whether you believe retailers will pass it on in all cases, and whether you think it will have the desired effect of stimulating the economy.

I have an (un)healthy interest in politics! :asleep:

[Chris]

I'm pretty unimpressed by the proposed VAT cut. Assuming it goes ahead it will have little effect on consumer spending, but it will have a big impact on small businesses coping with the administration for the change. It may actually cost small businesses money to implement the changes. And then cost them again when it reverts in the future.

VAT is not a "visible" charge for consumers. 2.5% cut equates to an effective discount of 2.13%. On a £40 shop this is only 85p off. Where it would be noticed more is on larger consumer goods like cars, but even then a £10,000 car would only be reduced by £212 which will make no difference when persuading an "on the fence" consumer to take the plunge.

Keeping inflation in check would have had a better effect, benefiting lower earners on essentials like food and fuel.

Cutting VAT will, however, create a large whole in the treasury bank account which will lead to more borrowing and higher future taxes.

It's ill conceived in my opinion.

[little-linguist]

I think it's a pain in the ar*e. Very few consumers will benefit from the cut. For example, if something currently retails at £49.99 gross, I would very much doubt that it would suddenly drop down to £48.92 or whatever overnight. Boxes / clothes tickets have already been printed with (gross) prices on etc and businesses aren't going to spend hours putting sticky labels over old prices or changing shelf edge labels etc. "Everyday" things for families like most supermarket food and kids clothes is 0% VAT anyway so no saving to be made there.

So on the face of it, it would appear that businesses will benefit as they can just keep more of the turnover for themselves. However, all the additional admin etc. is not worth the 2.5% we'll save in the short run. And we've just had catalogues printed showing both ex VAT and inc. VAT prices so half of those will be wrong now! Grrrrr

I suppose small businesses that aren't registered for VAT will benefit as their spending is based on ex-VAT prices with the VAT added on which they can't claim back. So less VAT means less to spend out. As a VAT registered business, you claim it back anyway so neither here nor there.

We'll all suffer in the long run when they whack it up to 20% later to recoup the lost revenue.

[john]

In my view a cut of 2.5% will have no real effect on sales, most of the damage has already been done to retail with credit insurers withdrawing cover from thousands of retailers in expectation of a mass of liquidations after Christmas, it's not just Woolies, DSG, JJB etc that have had their credit curtailed, it's probably every retailer on Bluepark, only nobody has told them yet!
I believe all taxation should be on the basis of a sales tax only, with income tax being abolished and put on to sales, that way everything you earn you keep and tax becomes an option, the more you consume, the more you pay.
The savings ratio would improve overnight and the government could get much of their needed finance from its own citizens, instead of relying on the purchase of Gilts by hot foreign money.

[Rich]

This was my suspicion, that many businesses won't bother passing it on. As you say, in most cases it will make little or no difference to a buying decision. The problem lies in the way we build VAT into our prices in the UK for retail sales.

[Adva Trading]

Not answering the question asked at the top, but I have a burning desire to have my say on VAT from the social point of view:
VAT should have been a progressive tax – Tax on consumption – A just tax – The more you consume, the more you pay.
In reality, it is one more un-just tax:
The rich will pay more for consuming, as they consume more. But there will be no effect on their consumption. They simply have enough money to spend regardless the VAT tax rate.
The middle class will pay for what they consume, and they may have to make some hard decisions some times about consuming. As they are the biggest part of society, the hard choices they will have to make will impair on their ability to spend a lot.
The poor people are penalised and hit hard.
VAT is bourn out of a socialist wrong ideal that consuming is bad. We now know that consuming is essential for the economy – Prospering economy is a spending economy.
We should abolish VAT and increase income tax range and steps – that is the only just tax!
Without VAT:
The wealthy will spend as before and there will be no noticeable effect on the economy, the poor will spend as before, as they buy whatever they think is essential (wide screen TV? ), but will be left with more money in their hands, and the middle class will spend more without changing their life style.
By the way:
I think that corporation tax should be cut dramatically. That way, the middle class (and higher middle class) will have more jobs as corporations locate to this country, and there may be even more low paid jobs because of that. Some of the supper rich may be forced to live here too…
Sorry for that. I don't even charge VAT yet :(