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copydude

The Great Vat Rise. Nail In The Coffin Or Non-Event?

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20% VAT from January 1st.

Make Any Sense At This TIme ???

I'm no economist, but I was reading up about VAT lately.

It's effects are huge. According to Wiki, 50% of French tax revenues come from VAT.

But . . . France doesn't have quite the level of stealth taxes that people already pay here. Denmark has a zonking 25% VAT rate. But the Danes do have higher salaries and disposable incomes. (When did we last have disposable incomes?)

I think 20% is unaffordable in the UK . . . considering our household bills . . . particularly on energy, telecomms and petrol.

VAT is also a huge pain in the butt for business . . . you have to pay VAT when the invoice is generated . . . but clients pay slowly in recession, maybe not at all.

I wonder if a lot of business will give up in January, timed with a VAT quarter? In the same way that Christmas retailers traditionally bow out in January, after their last gasp kill?

Just speculating and all.

(BTW. There are just 16 shopping days left til the VAT hike)

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This could be the final nail in the coffin for those businesses that are only just surviving.

Higher taxes on productivity = economic contraction, this could end up costing the government more in lost revenues.

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it is an extra £2.50 for every £100 spent. Is that really going to break anyone? I am certainly not about to rush out and buy a new washing machine so that I can save that whopping tenner.

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it is an extra £2.50 for every £100 spent. Is that really going to break anyone? I am certainly not about to rush out and buy a new washing machine so that I can save that whopping tenner.

Yes good answer . . . it's why I asked the question. On discretionary items, it's not - at face value - a whole heap.

But 20% is a swingeing tax on things like energy bills . . which have just gone up 7%. And people can hardly afford them already.

And while you say, 'is that really going to break anyone' . . . well, markets are price sensitive. Why do you think every few pennies put on beer closes more pubs? Why are things priced at £5.99 and not £6.03? Why have Budgen's own label sausages, for example, been reduced from 500g to 454g? (They think we didn't notice.) Why are some cigarettes now in packets of 19 instead of 20?? Maybe going down to 18 in January?

Retailers seem to be aware that people are broke.

Edited by copydude

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I think it will have an effect.

2.5% on almost everything, and no room for wages to inflate. As you point out, buying decisions are taken on the edge, so those few pounds per item will add up to lost transactions.

I'd prefer a tax hike on income rather than economic activity, even though I would probably pay more under that arrangement...

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Yes good answer . . . it's why I asked the question. On discretionary items, it's not - at face value - a whole heap.

But 20% is a swingeing tax on things like energy bills . . which have just gone up 7%. And people can hardly afford them already.

And while you say, 'is that really going to break anyone' . . . well, markets are price sensitive. Why do you think every few pennies put on beer closes more pubs? Why are things priced at £5.99 and not £6.03? Why have Budgen's own label sausages, for example, been reduced from 500g to 454g? (They think we didn't notice.) Why are some cigarettes now in packets of 19 instead of 20?? Maybe going down to 18 in January?

Retailers seem to be aware that people are broke.

My guess is non-event.

Even a family that is struggling would probably need to spend no more than 500 per month on VAT-able goods and services, so the extra 2.5% would only amount to an extra 12.50 per month. I am sure that almost everyone could find this by budgetting somewhere else. The bigger problem is inflation, as seen in the massive increases in fuel costs, car insurance, etc.

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My hunch is that it will make no difference to spending. In fact there is actually an argument for spending more in the short term due to idiots emptying their wallets over xmas to "beat the tax hike" and spending more than would have otherwise.

I save about 40-50% of my spare money anyway. Not bothered.

The governments cuts and other savings wont actually come into affect until way into the future, so they need an instant money-grabber. Vat works a treat. Even tax rises that reduce revenue dont do so in the short term. The laffer curve tells short term porkiepies.

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But 20% is a swingeing tax on things like energy bills . . which have just gone up 7%. And people can hardly afford them already.

VAT on Energy bills are set at 5% currently. Does anyone know if they plan to put this up too?

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20% VAT from January 1st.

Make Any Sense At This TIme ???

I'm no economist, but I was reading up about VAT lately.

It's effects are huge. According to Wiki, 50% of French tax revenues come from VAT.

But . . . France doesn't have quite the level of stealth taxes that people already pay here. Denmark has a zonking 25% VAT rate. But the Danes do have higher salaries and disposable incomes. (When did we last have disposable incomes?)

I think 20% is unaffordable in the UK . . . considering our household bills . . . particularly on energy, telecomms and petrol.

VAT is also a huge pain in the butt for business . . . you have to pay VAT when the invoice is generated . . . but clients pay slowly in recession, maybe not at all.

I wonder if a lot of business will give up in January, timed with a VAT quarter? In the same way that Christmas retailers traditionally bow out in January, after their last gasp kill?

Just speculating and all.

(BTW. There are just 16 shopping days left til the VAT hike)

I think that the vat rise will also push inflation higher so whever they like it or not i think interest rates will be up.

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I think it will have an effect.

2.5% on almost everything, and no room for wages to inflate. As you point out, buying decisions are taken on the edge, so those few pounds per item will add up to lost transactions.

I'd prefer a tax hike on income rather than economic activity, even though I would probably pay more under that arrangement...

It's actually equivalent to a 2.1% increase.

And it doesn't apply to:

Food

Mortgages / rent

Utility bills

Council tax

Train / bus tickets

Books / newspapers / magazines

Children's clothes

In short it applies rincipally to imported consumer tat.

And its much better to tax wealth consumption than wealth creation.

The fact is it will be almost unnoticed.

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I think it will already have "brought forward" a fair bit of consumption - particularly high value items like cars, etc.

I was in a Mercedes dealer last week getting my car serviced and the service manager was trying to sell me a fixed price service package for my car - if I sign up before the end of December I will "beat the VAT increase" by getting my next 2 or 3 years of servicing at 2010 prices. Being the suspicious bear I am, I thought "hmmm, they would only be doing this if they expected service prices to fall" ;)

Expect squeals from the auto trade for another cash for clunkers scheme variant in early 2011.

A few companies are planning to eat the increase themselves, at least for a few months. January-March is fairly slim pickings for retail anyway, and that's without a mandatory price hike across the board.

The areas where VAT does apply are already hurting badly and I would imagine the price rises will push a few more to the wall:

Builders

Cars / bikes dealers

Restaurants

Are all struggling already, there will be less of them around come December 2011.

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20% VAT from January 1st.

Make Any Sense At This TIme ???

I'm no economist, but I was reading up about VAT lately.

It's effects are huge. According to Wiki, 50% of French tax revenues come from VAT.

No it doesn't. Any suggestion that it does is just silly.

But . . . France doesn't have quite the level of stealth taxes that people already pay here.

Oh yes they do. Employers NI of up to 60% is pretty well hidden from the man in the street

tim

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small drops makes a might ocean..

i feel if u look as such.. the change is less.. but VAT increase affects our daily life..

the worst i think would be on petrol ..

i can't think the diesel prices touching 130p !!

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It's actually equivalent to a 2.1% increase.

And it doesn't apply to:

Food

Mortgages / rent

Utility bills

Council tax

Train / bus tickets

Books / newspapers / magazines

Children's clothes

In short it applies rincipally to imported consumer tat.

And its much better to tax wealth consumption than wealth creation.

The fact is it will be almost unnoticed.

VAT is on utility bills at a reduced rate, and also lots of food items. Fuel is a huge one, and arguably most importantly, it also applies in the service sector upon which our economy depends.

It is a tax anywhere there is "value added" so it is in principle a tax on "business activity" rather than end user tat consumption.

I'd rather pay more income tax in a thriving economy rather than less tax in an economy with no jobs or activity.

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From memory, such rises in the past result in much higher % increases. Shops and consumers like round number figures. Something that costs 9.99 now will be a few pence over ten quid after the rise then 10.99 by March. Exactly the same rounding up happened when the Euro countries converted prices to the new currency.

This will have an impact. The VAT increase, rising cost of energy, slow but sure hikes in mortgage %s, RPI running above pay rises... It's all trickling through to put households under greater financial pressures. If IRs aren't leading to many repos, all the other factors are playing a greater and greater part.

BTW, IIRC isn't the VAT rise coming in on Jan 4th, not 1st?

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From memory, such rises in the past result in much higher % increases. Shops and consumers like round number figures. Something that costs 9.99 now will be a few pence over ten quid after the rise then 10.99 by March. Exactly the same rounding up happened when the Euro countries converted prices to the new currency.

This will have an impact. The VAT increase, rising cost of energy, slow but sure hikes in mortgage %s, RPI running above pay rises... It's all trickling through to put households under greater financial pressures. If IRs aren't leading to many repos, all the other factors are playing a greater and greater part.

BTW, IIRC isn't the VAT rise coming in on Jan 4th, not 1st?

I think "rounding up" would be a brave move for many retailers. IIRC, the Euro was introduced in most countries during one of the longest booms in living memory. Adding 3/4/5% to your prices during a huge recession, especially if your competition isn't putting prices up at all (because they are reducing margins to cushion the impact) could be commercial suicide for things like car dealers.

Having said that, in areas where there is very little competition - supermarkets, fuel, etc - they will be sure to take the piss.

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I doubt anyone will even notice the difference, most large retailers have already put the increase in place. The only difference in January will be in the accounts department.

I also doubt the increase will change the behaviour of consumers long term. Some very large purchases may be moved from January to late December to avoid it. Does not apply to Food, Childrens clothes etc which are on VAT 0.

Calculator:

I have the extra VAT amount for the retailer to make the same net selling price:

£1 Million £21,276

£100k £2127

£10k, £212

£1K, £21

£100 £2.12

Even spending 1k on something you are only looking at £21 extra, not really likely to influence the shopping behaviour of most people.

The only visible difference will be at the macro level.

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People saying they aren't bothered about £2.50 per £100 are missing the wider picture.

It is going to be crushing for fuel. We are already paying more for petrol now when oil is only $89 dollars a barrel than we did when oil was $148 in summer 2008. VAT is the same now but duty has increased by 8p per litre. These higher fuel costs will impact on everything.

The other main point about the VAT rise is that it will bring demand forward. The press are already telling people to "beat the VAT rise".

http://www.telegraph.co.uk/finance/personalfinance/8169226/Buy-now-to-beat-VAT-rise.html

Pay pre-Christmas prices to escape a 2.5% VAT increase but after the rise won't retailers be on the ropes and cutting prices more than the VAT?

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Well it rose from 15% to 17.5% last January and didn't seem to have a very noticeable impact.

It's a great pity the 20/80 tax/cuts aren't focused more on the beneficiaries of the 'credit boom' though i.e. those with assets, the wealthy, the tax avoiders and so on, but Osborne's hardly going to upset his owners now is he.

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I think the VAT rise is one of the least damaging policies the coilition government have introduced and it raises a good amount of money for the Exchequer.

I'm not convinced it'll 'break' anyone even those on a low fixed income but it'll undoubtedly mean less money spent elsewhere (in the general economy).

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VAT is on utility bills at a reduced rate, and also lots of food items. Fuel is a huge one, and arguably most importantly, it also applies in the service sector upon which our economy depends.

It is a tax anywhere there is "value added" so it is in principle a tax on "business activity" rather than end user tat consumption.

I'd rather pay more income tax in a thriving economy rather than less tax in an economy with no jobs or activity.

The economy doesn't depend upon the service sector - that's the type of Brownian thinking that believed that we could all get rich by selling houses, imported goods and debt to each other.

What the economy depends on is wealth creation and apart from the City and tourism the service sector creates very little wealth. What it does instead is circluate the wealth created by others providing services, some useful others less so.

The fundamental problem we have in this country is that our economy is unbalanced with not enough wealth creation happening to match the wealth consumption that we do.

Hence the massive increase in debt and the record trade deficits.

Raising VAT is a tax on wealth consumption and if it at the margins it stops people going for that unnecessary extra car ride, that unnecessary extra imported consumer purchase, that unnecessary extra night out so what?

And VAT doesn't affect business as VAT is reclaimable, the only people who effectively pay it are private individuals.

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People saying they aren't bothered about £2.50 per £100 are missing the wider picture.

It is going to be crushing for fuel. We are already paying more for petrol now when oil is only $89 dollars a barrel than we did when oil was $148 in summer 2008. VAT is the same now but duty has increased by 8p per litre. These higher fuel costs will impact on everything.

The other main point about the VAT rise is that it will bring demand forward. The press are already telling people to "beat the VAT rise".

http://www.telegraph.co.uk/finance/personalfinance/8169226/Buy-now-to-beat-VAT-rise.html

Pay pre-Christmas prices to escape a 2.5% VAT increase but after the rise won't retailers be on the ropes and cutting prices more than the VAT?

It's not going to be 'crushing for fuel'.

Last night I filled up at £1.18.9 after the VAT increase it will be £1.21.4

And judging by how busy the roads are increasing fuel costs aren't having much of an effect on the amount of driving.

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As other have said I agree that people won't notice 2% on top of the price of a bath towel, but they WILL notice 2.5p per litre on fuel.

Edited by libspero

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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