Monday, November 10, 2008

Tax revenue on life support

VAT must be slashed to avert crisis, warns CEBR

The government has discovered that they might not get anything with vat at 17.5 so they are going to cut it. The article points out that this will stimulate foreign manufacturing not the UK as we import everything. However, they are to be applauded for admittedly being forced into "cut public spending and taxes" mode, although they aren't actually cutting any public spending and they intend to increase it. I am guessing that our noble leaders are looking at some pretty dire news which we don't have yet.

Posted by stillthinking @ 09:58 AM (1243 views)
Please complete the required fields.



29 thoughts on “Tax revenue on life support

  • Aren’t VAT rates set by the EU?

    Reply
    Please complete the required fields.



  • ‘The Centre for Economics and Business Research said Gordon Brown’s bank rescue is starting to unravel…’

    Censor that remark, quick.

    Brown’s new-found status as Financial Saviour of the World is at risk.

    Reply
    Please complete the required fields.



  • “It also puts off the inevitable day when Britain must shake its addiction to shopping and start to live within its means.”

    A very significant sentence. Living within our means is the only real solution.

    Reply
    Please complete the required fields.



  • Quiet guy, I totally agree. This will be a hard lesson for those 20 somethings that have grown up in a world of spend .. spend.. spend…
    I was fortunate in that I tought my children to never take out an overdraft or loan unless you “really, really need to”..

    Reply
    Please complete the required fields.



  • The CEBR is an organisation with about as much credibility and understanding in the field of economic research as the Salvation Army.

    Reply
    Please complete the required fields.



  • I think you are right, renting2. I don’t think we can change VAT without 27 member state agreement. There is another point though, these things are dangerous to mention. Do you recall the stamp duty rumour which made people think waiting might be cheaper….

    Reply
    Please complete the required fields.



  • planning4acrash says:

    This reveals a truism, the government could get more tax by slashing it, because, it is parasitic and channels money into unproductive redistribution of wealth. Why didn’t they cut it before? Before they tried inflationary means? Because tax cuts are democratic and don’t benefit special interests only.

    Reply
    Please complete the required fields.



  • Alistair Darling’s obviously been taking advice from Del Boy about how to revive economic activity…………
    “No income tax, not vat……………”
    The sale of goods act is probably next to go……….
    “No money back , no guarantee….”

    Reply
    Please complete the required fields.



  • tyrellcorporation says:

    ‘Because tax cuts are democratic and don’t benefit special interests only.’

    I think Brown might slightly disagree with you. Tax cuts will be aimed directly at Labour voters – job done!

    Reply
    Please complete the required fields.



  • What is interesting is that according to all these “expert” groups proferring advice is that the only way out of the current mess is to restart consumer spending. If this was a household maxed up on credit would the CAB be advicing getting hold of yet another credit card?

    It looks like they are trying to force out all those who haven’t p!ssed all their money against the wall and then borrowed more to patriotically take up the baton and get shopping.

    Reply
    Please complete the required fields.



  • Agree with you tyrell, knowing GB and AD it’ll be in the form of extremely complicated and specifically targeted tax credits.

    Reply
    Please complete the required fields.



  • VAT is not set by the EU but each individual country. If GB drops the VAT rate, how is he going to pay for his bloated government and all these civil servants and the 1,000 consultants London uses and and and…..
    GB and his chums dont care about us full stop. When has a politician ever cared anyway, left or right ?

    Reply
    Please complete the required fields.



  • US tax changes:

    http://www.washingtonpost.com/wp-dyn/content/article/2008/11/09/AR2008110902155.html?hpid=topnews

    Quote- “The financial world was fixated on Capitol Hill as Congress battled over the Bush administration’s request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.
    But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.
    The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.
    “Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no,” said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. “They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks.”

    Reply
    Please complete the required fields.



  • I can’t see how a VAT cut only helps Labour voters? Everyone has to buy stuff. Generally, I am alarmed at all the IR cuts and bailouts aimed at banks, mortgages etc because I will pay for it eventually and I don’t benefit since I have savings and no mortgage. But a VAT cut would benefit me too.

    Reply
    Please complete the required fields.



  • I can see that a tax cut would help those in a job, with low debt and possibly not home owners. Since they’ll “pick up a bagain”.

    If you’ve got a job, lots of debt and are a homeowner facing negative equity – you’d be a real berk to go buy a new TV when you should be paying off debt.

    Thus, I don’t see how paying off debts will suddenly restart the economy.

    Reply
    Please complete the required fields.



  • I think the government is now trying to encourage those few people left in this country with savings to withdraw there money and blow it in a last ditch attempt to keep the economy going. It will be interesting to see what sort of country were left with when all savings have been destroyed.

    Reply
    Please complete the required fields.



  • 3. quiet guy

    Or another way to look at it. The next generation will have to accept a lower standard of living than the last. This year marks the every decreasing standard of living in the UK only cloaked by the ever increasing levels of debt.

    Reply
    Please complete the required fields.



  • 3. quiet guy said…
    “It also puts off the inevitable day when Britain must shake its addiction to shopping and start to live within its means.”

    A very significant sentence. Living within our means is the only real solution.

    Monday, November 10, 2008 10:16AM
    ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

    I doubt wether either of these will happen, the only possible way forward is more debt. Peaceful or otherwise.

    As revenues fall, they will find new ever more subtle ways of taxing and borrowing. They always have.

    Stand back and look at how we all meekly ‘sat back’ while they introduced 30 year PFI contracts for essential such as hostpitals!

    We are a pushover.

    Reply
    Please complete the required fields.



  • I suppose what all this is saying is that the economy is in deep deep trouble, and the only way to avert a severe recession bordering on depression is to take actions of this kind. This will mean house prices are going to drop a long way. I notice round my way that rents are about half the cost of the interest payments on the current asking prices.

    If the economy is really in better shape, we can presumably expect big inflation.

    Reply
    Please complete the required fields.



  • 18. matt_the_hat said…
    3. quiet guy

    Or another way to look at it. The next generation will have to accept a lower standard of living than the last. This year marks the every decreasing standard of living in the UK only cloaked by the ever increasing levels of debt.

    Monday, November 10, 2008 11:54AM
    ,,,,,,,,,,,,,,,,,,,,,,,,

    matt the hat – exactly – but it is only a marker as a degree of descent, a peak in a continuum. I think the original national debt was a massive £1.8m and the interest repaid the lenders within about four years although we still owe the capital.

    Reply
    Please complete the required fields.



  • Aha, I didn’t realise there was a thread going.

    @ Daft Boy and Holding Out, I shall cut and past what I wrote on my ‘blog………

    “The CEBR have grabbed the bull by the horns and set the hare running with their suggestion that VAT should be cut from 17.5% to 12.5%, a story which appears to have been featured by most major newspapers.

    As I have long argued, VAT is The Worst Tax Of All (followed closely by Employer’s NIC)*. The detractors are swift to point out The Elephant In The Room:

    The EU’s VAT Directive sets a lower limit of 15pc for all member states, but it allows for a temporary cut under “certain conditions”. Brussels is unlikely to object strenuously at this stage.

    I am quite sure that the CEBR are perfectly aware of this, so they are killing two birds with one stone; they are highlighting the fact that VAT is the worst tax and that it’s imposed on us by the EU.

    As to the other objection:

    The drawback of a VAT cut is that stimulus leaks overseas through imports, a risky strategy at a time when the UK current deficit is already running at 3pc of GDP – although imports are now collapsing. It also puts off the inevitable day when Britain must shake its addiction to shopping and start to live within its means.

    Well, no actually. Total VAT receipts are derived about half from the sale of goods and half from services. Services are by definition almost entirely produced and consumed domestically, so an even better suggestion would be to leave VAT on new goods as it is for the time being, and scrap VAT on services completely. Services already suffer a super-tax, i.e. Employer’s National Insurance, so that would level up the playing field.

    * Even the European Central Bank’s research backs this up, from page 19 of this:

    Thus, it seems that while for the OECD countries social contributions are more detrimental to growth, for the EU countries indirect taxes are more harmful. In contrast, direct taxes and size do not seem to affect growth significantly for
    either set of countries.19 This could suggest that direct taxes (such as income taxes) are less distortionary than indirect taxes (such as VAT, sales taxes, goods and services taxes) and social contributions.as cunning as foxes IMHO.”

    Reply
    Please complete the required fields.



  • The EU requires a minimum VAT standard rate of 15%, and a minimum lower rate of 5%. National governments can choose to charge more than this if they want.

    Reply
    Please complete the required fields.



  • Mark W – I wasn’t arguing about the validity or indeed legality of reducing VAT. What I was merely pointing out is that all these solutions offered by the so called experts always involve getting people to go shopping. I would have thought that any solution might involve a more productive use of our time and effort.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    @ Holdingout – that was one of my points – we could keep VAT on ‘shopping’ for the time being but scrap it on services.

    Reply
    Please complete the required fields.



  • MW – Maybe so, but I don’t think that’s what they’ve got in mind.

    What is a service? Fitting new tyres at Kwik fit would technically not be a service as it is included in the price. Loads of businesses would either need to make changes to their computer systems or at least adjust their product details to cater for different rates of VAT. Many companies price an item with a service part included. There would doubtless be loads of disputes as to what percentage of goods would be classed as service (as in the case of fitting tyres). Lots of work for lawyers perhaps. Simplicity is the key.

    I think we’ve just got to take this severe recession on the chin and get over it by making goods and providing services which actually generate money. If in the meantime it means doing without certain things on the never never then frankly I welcome it.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    HO, do you have any idea how fiendishly complicated VAT really is? Retailers (who sell VATable stuff and zero rated food) can split up total receipts somehow, it can’t be impossible for Kwik Fit to split up the tab, sure they might exaggerate the service element, but in return they will only be able to claim a smaller proportion of input VAT, so the potential for fraud isn’t as big as you think. In any event, surely we can define ‘new goods’?

    Reply
    Please complete the required fields.



  • It’s not fiendishly complicated. Nonetheless it is still more work. Don’t forget not only is VAT charged to the paying public but also between companies it is then claimed back by VAT registered companies that would also have to be changed to fit in with the new rules. It would just end up as another Tax credit debacle ending up costing a fortune in admin.

    In any case we need to return to fiscal responsiblity. Whilst the Government may claim that’s what it intends to do later. We all know this is b0llocks. Take the recession. Cut spending. Make stuff. Grow stuff. Do stuff. Stuff shopping.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    The scheme that I outlined would fit in perfectly well with current VAT system. We currently have VATable, zero rated and exempt supplies. Under my scheme we would have VATable, zero rated and exempt supplies. Just there’d be more exempt supplies. No tax to charge, no input tax to reclaim.

    Reply
    Please complete the required fields.



Add a comment

  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
  • Please adhere to the Guidelines

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>