Tuesday, Nov 25, 2008
Well, eveyone seems to be over the moon with ZaNuLabours magical plan
Timesonline: ‘When M&S is slashing prices by 20% to get customers in, VAT cut is insignificant’
The Chancellor was accused yesterday of using a flawed tool to stimulate the economy amid concern that the £12.5 billion temporary cut in VAT would not work properly.
The reduction from 17.5 per cent to 15 per cent was too little to be effective, may not be passed on to consumers and could be neutralised by people deciding to save, economists said. “This will do very little to give the UK economy the impulses it needs,” Hermann Simon, from the management consultant Simon-Kucher & Partners, said.
Posted by flintster1994 @ 09:11 AM (633 views) Add Comment
21 Comments
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1. malct said...
surely VAT is applied all along the way to the retail shop.
raw materials, parts manufacture, assembly, wholesale, distribution & warehousing etc so that by the time it gets to the consumer the price cut could be substantial.
2. flintster1994 said...
"There was also serious doubt about whether businesses would pass on the cut to customers. The cost and effort of changing price tags and adjusting IT systems could persuade companies to maintain prices and boost their profits instead."
Can't remember which HPC'er made this point yesterday, but someone did.
3. flintster1994 said...
Never thought about that malc. Anyone care to comment?
4. Unbeliever said...
Malct it is applied and reclaimed all the way along the line so businesses charge VAT on other businesses but then reclaim the VAT and so on all the way down the line. Its only when you get to a private individual or a business not registered for VAT that it finally sticks.
5. Tudorian said...
@1 Malct said
"surely VAT is applied all along the way to the retail shop.
raw materials, parts manufacture, assembly, wholesale, distribution & warehousing etc so that by the time it gets to the consumer the price cut could be substantial."
Each time a company pays VAT, it's accountants claim that VAT back at the enmd of the year.
Its only th final consumer (us) that ends up paying VAT.
6. Blobby said...
Look at the exchange rate for the dollar and yen in the past couple of months anything bought in these currencys has increase by 30-40%. Some of the shop I shop at have increased there prices by 20% already and predict they will have to increase by another 10% if currency rates do not improve. 2.5% off vat is p!ssing in the wind.
7. Greyhound1234 said...
Malct/Flintster - Incorrect. There will be no 'VAT Cascade', as VAT is reclaimed by businesses at the intermediate stages, such that the VAT only appears at the end of the supply chain, i.e. to the main consumer.
8. tudorian said...
malct said @1
"surely VAT is applied all along the way to the retail shop.
raw materials, parts manufacture, assembly, wholesale, distribution & warehousing etc so that by the time it gets to the consumer the price cut could be substantial."
Every company claims the VAT that it has paid back from the gummint at the end of the tax year. Its only us poor mugs at the end of the supply chain who really pay VAT at all.
9. matt_the_hat said...
VAT is claimed back by companies and is only paid by the end customer (i.e. private individual) business' do not pay VAT
10. Wofmd said...
Malct, one mans VAT input is another mans VAT output. My understanding is that the net effect throughout the supply chain is zilch.
Ultimately it is the end consumer who pays the VAT - and this is collected by the retailer and paid onto HMRC.
I posted an example on another thread to show the 2 options open to the retailer due to the change in VAT rate.
In my opinion, this whole exercise will result in a waste of time/resources for the retailer to re-price every item in the store and probably will not lead to a significant increase in sales as the “savings” for the consumer are insignificant.
Makes my blood boil!
One day the general public will wake up from their alcohol/celebrity/consumption induced stupor and realise what is going on.
11. fjcruiser said...
5. matt_the_hat said...
VAT is claimed back by companies and is only paid by the end customer (i.e. private individual) business' do not pay VAT
unfortunately any turn over above £70,000 means you pay VAT. Not all VAT is just paid by curtomers. If you do improvements to your business, like building a new office for eg, you will have to pay VAT. You cannot deduct it.VAT hits everyone, companies and individuals. That is why it keeps rising and it is such a cash cow.
12. gardeniadotnet said...
Correction: VAT is only claimed back by companies that are VAT registered.
13. garb said...
How do they conjure inflation figures? Is it before VAT? If so then if the retailers increasing the pre Vat price to keep the round figures (the £299, £499 etc) will put up the inflation figure, won't it?
14. garb said...
although as mentioned the cut is to help the supply chain make a little more rather than help consumers. As most goods are imported any gain would have already been wiped out by the fall in the pound.
15. landofconfusion said...
Of course none of this VRT(*) meddling will effect import duties.
(*) Value Reducing Tax
16. holding out said...
Malct - You seem to have come up with a product where raw materials are UK sourced, it is made in the UK and sold in the UK. I'm not aware of such a product. VAT is only chargeable within the UK. In any case it will be claimed back by VAT registered companies. Therefore it only the end consumer who is affected.
The problem for many retailers is that they set their prices to obtain a margin but then these the price is "charmed" so that an item is priced for e.g at 199.99 this includes VAT. To just remove the VAT would leave an unattractive number - So in this case they would probably not want to move the price one priced at 209.99 would probably be rounded down to 199.99 - The point being that each item would have to be assessed and then reticketed within the store. It's a lot of effort.
As regards inflation figures they are on retail prices and therefore do include VAT. If the VAT change is passed on then CPI will fall.
17. stillthinking said...
Hmm. Indeed. The CPI inflation figures are kind of worthless then because a major part is taxation. Reduce income tax, and workers become cheaper and the price of goods go down. Reduce VAT and the price of goods goes down.
Maybe thats why many people derive their inflation figures from the rate of expansion of the money supply !
VAT is chained all down the line. It is an essential component in ensuring that all money eventually ends up in the hands of the government. I work and earn 100 pounds, the value of my work. I give 30 in income tax. I have 70. I pay 70 to a plumber to fix my sink, he gets about 60 and 10 goes in VAT. He then buys a TV for 60. The TV manufacturer gets 51 and 9 goes in VAT. The TV builder (a magic one who refines glass and copper wiring single handed) pays15 in income tax.
I think its a bit of a key point really. -All- money ends up in government hands. Income tax and VAT etc only control the -speed- that this transfer takes place, -not- the amount.
18. still renting said...
@stillthinking
That's a slightly distorted view of what happens. As you demonstrate, most money passes through government hands at some point. But money doesn't really "end up" anywhere. The government spend it on public services, debt servicing, MPs' inflated salaries etc. So it ends up in the hands of employees, who buy TVs etc. The money just keeps on circulating though the system.
19. fahrenheit451 said...
Going down the high street, nobody is going to change their prices to reflect the VAT cut.
It will cost more to change the price ticket than the savings that might be passed onto the customer.
Totally poinless, and will hopefully backfire as a completely irresponsible load of Piscal Follisy.
20. Wofmd said...
I realise that most people will already “get” this, however just to illustrate how stupid this idea is, let’s look at a simple example of a good currently priced at £49.99.
Sale Price: £49.99
Current: Net £42.54 + VAT £7.45 = £49.99.
VAT lowered from 17.5% to 15.0% gives 2 options to the retailer:
Option 1: Net £42.54 + VAT £6.38 = £48.92. (Retailer alters price)
Option 2: Net £43.47 + VAT £6.52 = £49.99. (Retailer leaves price unchanged - no need to amend price tags)
End result:
Option 1: You spend £1.07 less for the item. Govt receives £1.07 less tax than usual. Retailer receives the same amount of revenue.
Option 2: You are no better off. Govt receives £0.93 less tax than usual. The retailer receives £0.93 more revenue than usual.
Which option will the retailer pick?
*IF* a retailer was to pick Option 1, will the consumer rush out and buy the good now that it has been reduced from £49.99 to £48.92, saving them a mammoth £1.07?
If the retailer plays ball, here are the “savings” the consumer will get on items priced at:
£249.99 = £244.67 (saving £5.32)
£999.99 = £978.72 (saving £21.27)
What a waste of time and hassle for the retailer who has to re-price everything in the store and change their accounting systems (!)
Another one to file with the 10p tax rate debacle I suspect!
21. matt_the_hat said...
17. stillthinking - my view point is that all money is the governments they just decide how much they are going to let you have. If we had real money this could not happen.