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Why Vat Cannot Increase In Jan

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We saw the 'virtuous' cycle of VAT decrease leading to lower inflation leading to the possibility of lowering interest rates to where they are currently.

If VAT goes up in Jan, firstly we will have a rise in inflation leading BOE to raise rates leading to further inflation (considering the CPI which includes mortgages) .. this will give rise to the 'vicious' cycle where rates have to keep going up leading to the general election.

Unless the plan is for an election this autumn .. there aint going to be no VAT increase !!

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We saw the 'virtuous' cycle of VAT decrease leading to lower inflation leading to the possibility of lowering interest rates to where they are currently.

If VAT goes up in Jan, firstly we will have a rise in inflation leading BOE to raise rates leading to further inflation (considering the CPI which includes mortgages) .. this will give rise to the 'vicious' cycle where rates have to keep going up leading to the general election.

Unless the plan is for an election this autumn .. there aint going to be no VAT increase !!

I dont think they will have too much of a problem making up the stats. Its all pi55ing in the wind rise or no rise though.

Edited by worzel

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We saw the 'virtuous' cycle of VAT decrease leading to lower inflation leading to the possibility of lowering interest rates to where they are currently.

If VAT goes up in Jan, firstly we will have a rise in inflation leading BOE to raise rates leading to further inflation (considering the CPI which includes mortgages) .. this will give rise to the 'vicious' cycle where rates have to keep going up leading to the general election.

Unless the plan is for an election this autumn .. there aint going to be no VAT increase !!

Whatever makes you sleep well at night...

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If VAT goes up in Jan, firstly we will have a rise in inflation leading BOE to raise rates leading to further inflation (considering the CPI which includes mortgages)

It (infamously and intentionally) doesn't. Had it done so we might not be where we are now.

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It (infamously and intentionally) doesn't. Had it done so we might not be where we are now.

deleted as wrong

Edited by kilroy

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We saw the 'virtuous' cycle of VAT decrease leading to lower inflation leading to the possibility of lowering interest rates to where they are currently.

If VAT goes up in Jan, firstly we will have a rise in inflation leading BOE to raise rates leading to further inflation (considering the CPI which includes mortgages) .. this will give rise to the 'vicious' cycle where rates have to keep going up leading to the general election.

Unless the plan is for an election this autumn .. there aint going to be no VAT increase !!

makes you wonder that if they are destined to be running a huge budget deficit anyway, why they want to reverse one of the much touted fiscal stimulus tax giveaways ?

To a lesser extent, that applies to the reversal of the stamp duty threshold increase at the same time.

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We saw the 'virtuous' cycle of VAT decrease leading to lower inflation leading to the possibility of lowering interest rates to where they are currently.

If VAT goes up in Jan, firstly we will have a rise in inflation leading BOE to raise rates leading to further inflation (considering the CPI which includes mortgages) .. this will give rise to the 'vicious' cycle where rates have to keep going up leading to the general election.

Unless the plan is for an election this autumn .. there aint going to be no VAT increase !!

rates are staying very low no matter what. However the above paragraph is complete rubbish.

Mortgage repayments are in the RPI not the CPI which the BOE loosely bases it's decisions on.

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I can't think of anywhere I buy where the price I pay actually went down due to the 2.5% reduction in VAT .

Therefore , when the vat rate goes back up to 17.50% (or higher) the government take will be higher as the shop etc will then increase their price 2.5% on top of the "not reduced price" , resulting in increased revenue over and above what would have resulted if the rate hadn't been reduced .

ie

Beer

Was £1.17

After reduction , stayed at £1.17

Will now , after increase to 17.5% vat , go up to £1.20 .

Result , increase in vat take of 3p

Sneaky fockers .

Yep , I've ben drinking so more than likely wrong :-))

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rates are staying very low no matter what. However the above paragraph is complete rubbish.

Mortgage repayments are in the RPI not the CPI which the BOE loosely bases it's decisions on.

ok Igot it wrong .. RPI instead of CPI ....but statement in bold is even more rubbish..

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VAT up by 2.5%, Oil up by 50%, Full effects of pound devaluation feeding into prices, food inflation. Yes inflation is set to rise big time by the end of 2009 but of course 'nobody saw it coming'. <_<

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VAT up by 2.5%, Oil up by 50%, Full effects of pound devaluation feeding into prices, food inflation. Yes inflation is set to rise big time by the end of 2009 but of course 'nobody saw it coming'. <_<

Absolutely spot-on. I and a few others have been saying this for a while. It will appear soon enough and nobody will have seen it coming. The BOE will will announce their inflation report citing "unexpected" inflation which will soon move back to trend - within two years. In order to combat it they will keep interest rates low :blink:

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I can't think of anywhere I buy where the price I pay actually went down due to the 2.5% reduction in VAT .

Therefore , when the vat rate goes back up to 17.50% (or higher) the government take will be higher as the shop etc will then increase their price 2.5% on top of the "not reduced price" , resulting in increased revenue over and above what would have resulted if the rate hadn't been reduced .

ie

Beer

Was £1.17

After reduction , stayed at £1.17

Will now , after increase to 17.5% vat , go up to £1.20 .

Result , increase in vat take of 3p

Sneaky fockers .

Yep , I've ben drinking so more than likely wrong :-))

Badger simultaneously increased duty on alcohol to offset the vat reduction so no price reduction occured.

Edited by CrashConnoisseur

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VAT up by 2.5%, Oil up by 50%, Full effects of pound devaluation feeding into rices, food inflation. Yes inflation is set to rise big time by the end of 2009 but of course 'nobody saw it coming'. <_<

Correct. Important to remember that todays zero/negative RPI is entirely caused by oil prices being 2/5ths of what they were a year ago.

Oil peaked at the start of July last year at $150. By december is was sub $50 dollars.

You can guess what happens in December.

If you can't I'll make it easy.... RPI @ 7-10%

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We saw the 'virtuous' cycle of VAT decrease leading to lower inflation leading to the possibility of lowering interest rates to where they are currently.

If VAT goes up in Jan, firstly we will have a rise in inflation leading BOE to raise rates leading to further inflation (considering the CPI which includes mortgages) .. this will give rise to the 'vicious' cycle where rates have to keep going up leading to the general election.

Unless the plan is for an election this autumn .. there aint going to be no VAT increase !!

The VAT cut was announced as an incentive for consumers to buy.

In reality, it was an attempt to boost retailers profits.

Very few prices were reduced and the extra margin went straight to the P&L bottom line.

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Correct. Important to remember that todays zero/negative RPI is entirely caused by oil prices being 2/5ths of what they were a year ago.

Oil peaked at the start of July last year at $150. By december is was sub $50 dollars.

You can guess what happens in December.

If you can't I'll make it easy.... RPI @ 7-10%

Time to buy some Index-linked NSandI bonds before then!

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The 2.5 percentage point cut was designed to last one tax year only (and is meant to be kept under review during that time).

IMO not only will Darling will put the VAT rate up in the next budget but will push it up to near 20%, arguing that it the EU average.

He simply won't have the choice - the budget deficit must be curbed and the planned spending cuts will not be near enough what's required.

Increase in fuel/alcohol/tobacco duties are virtually impossible (especially if oil prices continue to rise).

Income tax is already scheduled to go up on higher incomes and it would be politically suicidal to put the basic rate up just before a general election.

VAT at 20% and new taxes on recycling & packaging are sure bets in my view.

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Increase in fuel/alcohol/tobacco duties are virtually impossible...

I agree with you about fuel, but in the last year or so the government's media outlets have been running a relentless anti-alcohol campaign (e.g. the double-page spread in The Guardian about the 22 year-old who died of cirrhosis, along with it being the lead story on BBC bulletins, plus the relentless propaganda against 'middle class wine drinkers'), I suspect in order to soften us up for big duty increases, that will be justified on the grounds that punitive duties on alcohol work in Scandinavia. They don't, but that's another story. And of course tobacco is an easy target.

The question is whether such duties would even scratch the surface of the deficit without causing significant economic damage through job losses in bars, breweries etc.

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The 2.5 percentage point cut was designed to last one tax year only (and is meant to be kept under review during that time).

IMO not only will Darling will put the VAT rate up in the next budget but will push it up to near 20%, arguing that it the EU average.

He simply won't have the choice - the budget deficit must be curbed and the planned spending cuts will not be near enough what's required.

Increase in fuel/alcohol/tobacco duties are virtually impossible (especially if oil prices continue to rise).

Income tax is already scheduled to go up on higher incomes and it would be politically suicidal to put the basic rate up just before a general election.

VAT at 20% and new taxes on recycling & packaging are sure bets in my view.

So the upshot is most people here either don't give a feck for the story or didn't buy more stuff because of the pathetic 2.5% discount. It is costing the exchequer about £1 billion a month so I'd say put it back up earlier rather than Dec 31 or Jan 31.

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The question is whether such duties would even scratch the surface of the deficit without causing significant economic damage through job losses in bars, breweries etc.

Good point - a tax on cut-price binge drinking will go down well with the Daily Mail.

Like you though, I feel the net fiscal impact could actually be negative when you factor in accelerating pub closures and associated job losses.

Fundraising options are really running out for Darling.

Apart from the above and 'green' taxes on packaging (another sure vote winner but not necessarily effective), I can't see where he is going to find the money.

I suppose he could also always tax supermarket car parks but that would upset their friends at Tesco ........

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So the upshot is most people here either don't give a feck for the story or didn't buy more stuff because of the pathetic 2.5% discount. It is costing the exchequer about £1 billion a month so I'd say put it back up earlier rather than Dec 31 or Jan 31.

Too right. However I'm not sure the government has been honest, I suspect a big motivation was to force down CPI inflation, so they could force the BOE to drop interest rates, and run scare stories on deflation. 1 billion per month is a price worth paying in Labours eyes to stand a slightly better chance of winning an election. They can claim tories had high interest rates, and they have low ones!

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The slight issue with increasing VAT is that it will have a big effect on inflation, probably increasing it by about 2% if the VAT cut is reversed.

If VAT is further increased, CPI could well go up to 7% or 8%. That would be a disaster so the VAT cut will not be reversed in January.

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Good point - a tax on cut-price binge drinking will go down well with the Daily Mail.

Like you though, I feel the net fiscal impact could actually be negative when you factor in accelerating pub closures and associated job losses.

Fundraising options are really running out for Darling.

Apart from the above and 'green' taxes on packaging (another sure vote winner but not necessarily effective), I can't see where he is going to find the money.

I suppose he could also always tax supermarket car parks but that would upset their friends at Tesco ........

The most effective fundraisng option is cut expenditure in the first place. Not paying GPs £7.50 for each flu injection would be a start.

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