Saturday, Aug 08, 2009
What a vote-winner!
Telegraph: Tories study plans for 20pc VAT
The Conservatives are studying plans to increase VAT to 20 per cent if they win power at the next election as part of an “emergency” package to pull Britain out of the red.
The proposal – likely to raise up to £10 billion a year – is being “very actively considered” at the highest level, according to senior shadow ministerial sources.
Posted by devo @ 09:30 PM (1794 views) Add Comment
30 Comments
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1. mark wadsworth said...
I'll promise to shut up about Land Value Tax for a while if at least people start seriously thinking about VAT and why it is The Worst Tax Of All.
Part of me thinks that actually the Tories will be even worse than Labour. Oo-er.
2. tyrellcorporation said...
This isn't that big news really as Labour have all along planned to up the rate to 20% as the dust settles from the banking bailouts. Most of the rest of Europe have VAT at 20% so it'll be spun as harmonisation across Europe. Either Labour or the Conservatives will have to do something like this to try and rebuild our balance sheet. My bet is that actually the electorate are up for a bit of honesty now about the country's finances and realise Labour can't keep lying and lying and lying some more. The game is up.
3. tenant super said...
VAT has its failings but if increased taxes are unavoidable then I'd rather it was VAT than income tax (I support LVT but can't see it happening anytime soon). The reason for this is that whilst it isn't just the end consumer who pays - the end consumer does pay nonetheless. This means those people who bought package holidays, Roche Bobois sofas and Jimmy Choo shoes with credit cards and MEW money will have to pay the price should they continue to pursue their relentless consumption. I practice financial autarky (I have no debts) and austerity with reasonable success and can go some weeks with paying very little VAT (except unavoidable VAT such as that on phone and other domestic bills) - groceries are VAT exempt and I buy clothes second hand. Books, my other big outgoing as a post graduate student are also VAT exempt, though I buy many of those second anyway. I ride a moped which uses very little fuel. People like me didn't fuel the debt crisis and if VAT were raised, people like me won't pick up a huge tab as a result.
4. devo said...
3. tenant super said... VAT has its failings but if increased taxes are unavoidable then I'd rather it was VAT...
If death by vehicle is unavoidable then I'd rather it was a bus.
5. Tenant Super said...
I would also add that despite my username and in contrast to the the archetypal student, I don't drink alcohol, another thing that would hit a lot of pockets under a VAR rate hike.
6. mander said...
5% increase which is a third of the curent VAT rate to bring only 10 billion a year? Then QE £ 175 billion created by the BO recently is almost 18 years a third of the VAT revenues.
Anyway high taxes in recession times are not recommended and unemployment will probably soar.
7. devo said...
"Anyway high taxes in recession times are not recommended and unemployment will probably soar."
We are surrounded by rocks and hard places.
8. vacuouspolitician said...
Would you really buy a second hand car from Cameron and his cronies...?
9. paul said...
The big problem is that this probably looks great on paper, but unfortunately, Cameron et al have absolutely no experience of running a country.
10. uncle tom said...
When considering whether taxes are good or bad, one has to apply three tests:
1) Is it equitable? Does it unfairly impact one part of society more than another.
2) Is it disruptive? Will it provoke people into wasting time and effort solely for the purpose of avoiding or reducing their liability.
3) Is it efficient? Is the expense of collection low.
VAT scores reasonably well on 1).
On 2), it bolsters the black economy, but in that respect tends to benefit the less well-off at the expense of the more affluent.
On 3), it wastes a lot of businesses' time through needless complexities. It is also high time that there was a national protocol for paperless invoicing and VAT management.
Overall, it is not the worst tax; but what our politicians need to understand is the extent of the disruption caused to business when the VAT rate is changed. We now look likely to have two rate changes within a year - an avoidable headache for business to have to deal with.
That an increase in VAT will only raise £10bn puts into focus the scale of the budget deficit. I wonder if the Tories are hoping this will make the public appreciate the true scale of the mess the public finances are in?
11. gone-to-colombia said...
Any indirect tax has a greater detrimental effect upon the poor. Since the Conservatives have traditionally been the party of the rich one would expect them to levy such a tax rise. This was their solution to the poll tax mess.
Clearly, there must be tax rises to pay for the effects of the recession, and gargantuan public borrowing.
What I would welcome is a dramatic re-think on taxation, one that might put the cost closer to the culprits.
I do not see much salvation in any of the three main parties, how sad that we might elect a party not because it has any inspired ideas but because it just represents something different.
12. alan_540 said...
I think it's about time income tax was raised to balance the books. See uncle tom's post regarding fairness. It's the only "fair" tax there is.
13. Fra Paolo said...
It seems to me that, like 1992, the next election will be a good one to lose.
14. japanese uncle said...
VATapplies billioaires and the poorest alike exactly at the same rate. There cannot any unfairer tax, period.
15. Tenpintom said...
Raising VAT is probably the least worst option.
1 Its largely avoidable given that food, children's cloths and books are exempt ~ VAT is originally designed as a luxury TAX
16. Gordiji said...
Mark @ 1, do continue to suggest LVT as the sanest option for raising revenue.Over time windfall gains in rising land values have benefted
those most where infrastructure has been improved(transport schools hospitals) as a result of general taxation.Its fair that these gains be taxed.However for a very long time the richest and most inflential would lose most by this system and consequently even a serious debate on the issue doesn't seem on the agenda.Changing to a system such as LVT would encourage money into the productive part of the economy.Land value increases would be moderated and thus house price rises.Fred Harrison(Renegade Economist.com) is a friend of the fair.He accurately forsaw the last crash, this one and talks of the seeds being sown for the next.He promotes LVT as the only sane way of raising revenue.
17. growler said...
.... and 5% VAT will cause some inflation too..... which will put pressure on interest rates....
As far as experience goes (paul), our existing master were in the same place when they came into power. And they've shown that underneath all the rubbish - they were the experts at tax, borrow & spend.
Roll on a Conservative government. It will help get rid of some nanny rules as well (I hope)
18. easybetman said...
"VATapplies billioaires and the poorest alike exactly at the same rate. There cannot any unfairer tax, period."
It depends whether you look at % or actual amount. Billionaires spend millions a years and pay hundred ks of VAT.
Perhaps VAT is indeed the only tax that they really pay, all the income tax avoided quite easily. (You are talking about
billionaire, not mere millionaires here)
Also, UK has about 1% of the world population and yet owns about 4% of the total world income. Nothing can be more unfair,
so let's redistrubute UK income around the world(perhaps via a world excess income tax which is administered by UN to redistribute)?
19. easybetman said...
I will much prefer a simply sales tax than the complex VAT (where carousel frund is frequent and occur in gigantic scale, mainly because VAT si a repayment element, while sales tax don't))
20. nomad said...
Income tax is the fair one if properly regulated - in the same way that fuel tax is the fair one for motorists, pay on what you use whether you drive a big 'un or a little 'un (sorry, not a petrol head).
Same with Income Tax - the more you earn, the more you pay.
21. stillthinking said...
Probably what they really want is to grab ownership of bank liabilities, i.e. deposits, which are safely(!) sitting in banks now having already run the taxation gauntlet. VAT represents a tax on -existing wealth-, which income tax is not. To consistently apply and maintain over a decade, 15->20% tax isn't that much different from confiscating 5% of deposit/savings accounts.
Also, it is equivalent to saying that VAT has historically been set too low, and should be higher, because it only works if revenue increases. The gov. ends up with more money as long as UK consumption doesn't drop by more than 4.8% and that immediate excess production gets taken on by a foreign consumer. If the foreign consumer doesn't make up the difference, and there is no reason to imagine they will at the moment, then because they are killing demand and jobs, then they make a loss on income tax instead and we have more redundancies.
Much better to cut the state sector slowly with the eventual gain as they hopefully start working in the private sector. That they are considering this at all makes you wonder how appalling bad things are.
22. inbreda said...
There is lots of talk about "raising income tax would just mean that the richest would find ways of avoiding"
And yet there doesn't seem to be any serious discussion of finding ways to PREVENT the super rich avoiding the tax. After all, didn't Mr'nomoreboomandbust' Brown promise us he was going to close tax havens? That's all gone a bit quiet hasn't it.
23. mark wadsworth said...
@ Uncle Tom
When considering whether taxes are good or bad, one has to apply three tests:
1) Is it equitable? Does it unfairly impact one part of society more than another.
2) Is it disruptive? Will it provoke people into wasting time and effort solely for the purpose of avoiding or reducing their liability.
3) Is it efficient? Is the expense of collection low.
The correct answers are
1) VAT destroys jobs far more than any other tax (Employer's NI is close second) if you know about things like 'economic and legal incidence of a tax' and 'supply and demand curves' that much should be blindingly obvious. And as most things related to land are zero-rated or exempt (i.e. food, renting and selling houses, banking) it massively distorts our economy away from production/consumption to speculating in land.
2) and 3) are the same question. In administrative terms, VAT is an absolute nightmare and fraud is enormous. But you could say the same for income tax, so let's call that a draw. The 'collection costs' are not too terrible for either tax, that is not the point. The real cost is the 'deadweight costs'.
@ JU, VAT might be a flat rate on certain items, and it appears to affect poor and rich alike, but you miss the point. By taxing the productive economy and ignoring land-related stuff, it is effectively a subsidy to land owners. And it destroys most jobs/puts most buinesses out of business.
24. vacuouspolitician said...
growler @13
Not convinced that they will be any better. They are all peeing in the same pot. Do they work for ordinary people? I get the impression Cameron will say anything to get in to power...after all Eton taught him he is a natural leader...What are his policies?
Be careful what you wish for...after-all Thatcherism was supposed to be the saviour of the country after a disfunctional Labour government. What we really need (and have needed for 30+ years) is a hung parliament which hopefully will take tough decisions for the benefit of many ordinary people of this country...and not for the greedy elitist few...
25. vacuouspolitician said...
easybetman @14
"Also, UK has about 1% of the world population and yet owns about 4% of the total world income. Nothing can be more unfair,"
...and I wonder how much of this 4% is in the hands of the 50+ generation?
26. vacuouspolitician said...
inbreda @18
Quite.
As my point in @20 ...Blair and Brown said all the right things before they got into power...they were going to deal with tax avoidance and sweep away the corrupt Major government...mmmmmm...yyyyyeeeeessssss
27. growler said...
@ vacuous
I agree - in parts. I think we need to get away from yah-boo politics and have PR. Those saying it leads to weak Government might wish to comment on how strong Labour majorities screwed us up big time (as strong Conservative ones have gone too far the other way). If you have to make policy to and to work together, then it would be a far better country. It would help to stop the see-saw politics.
I am sick of Labour and the legacy they have created - and I do hope the Conservatives use their mandate wisely. Given Cameron is a public relations aware chap, I think (and hope) he will reflect on the win and respect that we've had enough of political correctness, endless quangos and a huge state sector.
28. stillthinking said...
maybe VAT is being considered as a future tool to moderate inflation, relieving pressure to raise rates.
29. uncle tom said...
Vacuous,
The one thing a hung parliament or council never does is take tough decisions.
Such assemblies are a web of shady deals, as minor parties seek special favours for narrow interest groups in return for support.
Hung administrations take an even shorter term view than majority ones, and ultimately heap all the blame on whoever headed up the ruling group, while all the political parties wash their hands of responsibility.
It's the worst possible outcome..
30. vacuouspolitician said...
uncle tom @29
...yeah I hear what you're saying. You might be right. I'm not convinced it is the worst possible outcome though - there has been nothing conclusive for decades in this country to make this assumption. All we've had is decades of see-saw politics and most of this hasn't produced a good deal for ordinary people...so why not try a new approach? I did also say "hopefully" they might take tough decisions... and of course there has to be hope. Perhaps if we got a hung parliament we might have some sensible honourable politicians in charge eg. Vince Cable i/c treasury...
growler @27
Yeah I'm sick of New Labour too. They are truly awful. Tony Blair was the ultimate vacuous politician.
I hope you are right about Cameron...