Saturday, Nov 22, 2008
VAT cut by Christmas
TimesOnline: Gordon Brown to cut Vat as winter recession bites
Bad timing. An announcement of this cut, but today is 22nd November... The only plus is that I don't think anybody cares about a 2.5% change in VAT (good example of EU restrictions though). Probably £300 is a fairly substantial family gift but you are only going to save £7.50 .
Posted by stillthinking @ 11:28 PM (764 views) Add Comment
14 Comments
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1. planning4acrash said...
But if its borrowed, we get discounts on inflated goods! The ONLY birthday present we could have is total troop withdrawal from totally unjustifiable wars. This crisis is largely us paying for old battles Blair committed us to, for the illuminati.
2. sosoon said...
It will be interesting how the £0.99 brigade make the 2.5% adjustment. Or will the Pound shop increase their margin and reduce the VAT.
2.5% will make me spend no more than I intended anyway. I’m sure if those shops that are currently discounting by between 20 to 50% thought 2.5% was sufficient stimulus that’s the figure they would have used.
3. Jimmylad said...
they want to appear to be giving us something when in reality thy are giving us nothing. They have had the masses spending more than they can afford to for the last 10 years & look at the mess we are in now.
4. alan said...
A possible change might be car tax. Car sales have dropped a lot and margins are tight among carmakers. Re-instated volumes would be large knock-ons to suppliers and other employment.
And anyway, we are not going to start buying bicycles are we?
A worse option would be for a "shock and awe" giveaway. Like the big IR cut we saw a few weeks ago.
5. techieman said...
i have one rhetorical question. If people know that a tax cut begets a tax rise in the future then unless they "live for today" [where these kinds of people are already overstretched and only a short step away from IVA / Bankruptcy anyway]. Then what are they gonna do? Save it to pay for the later tax increases. Once they psycology has changed its changed. Fear is replacing greed. This tax giveaway / bonanza etc. is the last throw of the dice. And just before christmas? Hmmm.
Convential wisdom (for what thats worth) says they do have to throw them but they are more then likely to 7 out and pay the donts.
6. techieman said...
The alternative is to redistribute the tax take so the "poor" are given more money and the threshold on NI goes up to pay for it or a straight increase on those earning > say £100k. The poor are more inclined to spend kicking in the muliplier effect. Will that work? Well depends on 2 things first if the poor are in fear of their jobs and second what the poor will buy with it. Yes you can use Keynes but because everyone knows this it really looks like
PANIC as the speed of this has caught the government out. If everyone knows what you are doing the only way to ensure the mulitplier is utilised is to increase public works. What does that mean? New employment - not more overtime work to those curreently employed. I am only saying that because increases in overtime pay will merely support more savings. You have to encourage the peeps to spend it on areas where you WANT them to spend it.
In the short term this MIGHT work, but in the medium term, just a short term countertrend move.
7. iguana said...
Call me cynical, but I expect that the 2.5% would only filter down as far as the retailer and be retained by them as a boost to cash flow. There is however a benefit for the central coffers of HMG in reducing the EU take from UK taxation.
8. sosoon said...
Alan; you sound a bit VI to me, adjustments have to be a lot more than a few percentage points here and there; I saw yesterday that Broadspeed were doing a 2 for 1 on new Kia’s
BOGOF - BUY ONE GET ONE FREE
Housing also needs a 50% correction; any one who bought after 2002 should expect to make a loss, or be happy with their purchase, pay their mortgage and stay put.
9. Tyrellcorporation said...
2.5% is a piffling amount to most people. Cars? what freak buys a car these days? Would you buy a pile of shares knowing full well as soon as you get your hands on the certficate they'll halve in value? A car is now a luxury again - as it should be. A 2.5% cut wouldn't make me started hosing money everywhere and the thought of tax rises a year down the line will make me save today with even more vigour. The die is cast I'm afraid to say, consumers are spent and the feel-good factor has gone - austerity is the new profligacy.
10. stillthinking said...
@iguana, thats a good point, because the retailers are in more trouble than consumers at the moment. Although 2.5% off doesn't make much difference to me, if it isn't passed on then must be a substantial boost to the retailers mark-up. So easy not to pass it on as well, because who can know what the original price was.
Maybe Gordo is worried about the spectre of boarded up shops...
I think the interesting bit is that again UK policy is restricted by the EU. What I am beginning to believe, when there was all that fuss about joining and all the politicos were up for it but the general population wasn't, was that we have -in effect- joined already, in that all the fiscal restrictions that apply to Spain and Italy also apply to the UK, just that we have our "own" currency.
If we can't control this currency though, it isn't really our currency. The only difference seems to be that whereas differences between the euro region are reflected in wages i.e. Spain is cheaper than Germany, for us the affect shows up through the exchange rate. I think GB did a deal when the times were good and is now faced with the consequences of agreeing to fiscal discipline.
What freedom does sterling actually have ?
11. alan said...
@ Sosoon,
What is your recommendation? Vince Cable for example (on Andrew Marr, today) was looking at income tax reductions. This might help people pay mortgages etc and not have to go down the repossession route.
We are going to get a package from Darling, tomorrow, like it or not.
Do I have an interest? Yes, my industry is parts and vehicle manufacturing - a dying breed even before the Credit Crunch, I think. However, my comment was valid and relevant I thought....
12. paul said...
Deflation is not well understood in the UK and US, but this is actually the start of it.
This VAT reduction will need to be "replicated" - so yes, everything priced 99p will need to be replicated to 94p. Wooppydo. But woe betide the retailer that doesn't reduce - the Mail will be on them like a fly on poo crying "profiteering retailers".
This will prompt further reductions in prices. And so the downward spiral will begin ...
13. whostolemyendowment said...
VAT is a tax that feeds down the retail 'food chain', ultimately it is the end purchaser 'you and me' that pays the VAT, but for businesses down this chain they have to pay the VAT and reclaim it back - or rather square off what they pay with what they receive from the next down the chain, with end purchaser picking up the tab. If the chancellor reduces VAT this will take a while for those involved in the chain making their monthly or quarterly reclaims, and initially they will have to carry the can of the difference as the VAT cut will be immediate but up the chain would still have had to fork out the 17.5%......clever little chancellor!
If I am wrong please correct me.....
14. enuii said...
I have seen through the smoke and mirrors, they are cutting the VAT to 15% over Xmas and the New Year and will then readjust it to 20% as soon as possible. i.e. -2.5% from 17.5% now and +2.5% from 17.5% to pay for it later. Most of the educationally challenged populace of the UK will accept this as 'fair' without realising the mathematical and fiscal subtleties of it. The Meedja will also happily peddle the government line on it which will also be given some Green/CO2 Dressing by NeuLab. Plus firms on flat rate VAT will probably not see a cut in their HMRC payable VAT rate and will end up carrying a decent proportion of the cost both before and after any government VAT rate adjustments.