VAT cut to 8%!!!

MrRee_2

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OK, I have jumped the gun a bit .....

............................................ but, I can see it coming very soon.

It is the single thing which will get the economy moviing and get people spending.

That £30,000 car will now be £3,600 cheaper!

Makes sense ... and, mark my words, it is about to happen - do NOT buy anything big yet!!

Graham_Devon

Apart from it not being possible. Yer, brilliant.

MacMickster

So the UK is trying to reduce its budget deficit and VAT currently brings in revenue to the government of around £100 billion per annum.

Reduce VAT to 8% and they will have to find another way to raise £60 billion (around £1000 for every man, woman and child in the country).

Any insights into how they would achieve this in your fantasy world?

JasonLVC

Sorry, the VAT rate cannot be reduced to that level, not even if it was the will of the government.

An EU agreement was agreed in 2010 to set a minimum standard rate of VAT at 15% across all member states. This agreement is up for review in 2015.

http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/rates/index_en.htm
About halfway down, just above the heading "Other Documents on VAT Rates"

So until then, the lowest the standard rate of VAT can be is 15%. The EU also determines what goods and services can be sold at the standard rate, the nUk cannot suddenly say everything can be sold at the reduced rate.

The other rate of VAT (5% reduced rate) is similarly controlled by rules which determine what the lowest rate it can be and equally, the rules are very specific as to what can and cannot be sold under the reduced rate heading.

JasonLVC

MacMickster wrote: »

So the UK is trying to reduce its budget deficit and VAT currently brings in revenue to the government of around £100 billion per annum.

Reduce VAT to 8% and they will have to find another way to raise £60 billion (around £1000 for every man, woman and child in the country).

Any insights into how they would achieve this in your fantasy world?

The previous government reduced the standard rate down to 15% at an estimated cost of approx £14b for the one year it was reduced and there are logical reasons for pushing for a lower VAT rate as cheaper goods, logically means people can afford them and so buy more of them and £14b is easily found elsewhere if push comes to a shove.

My view is that this logic is not sound, people may spend more but most likely on foreign imports, not home produced goods and so not only does the UK get less VAT receipts, it also increases the trade deficit and reduces home grown production and thus fewer jobs, etc. Much like the car swap scheme back in 2009 where everyone got £2k off a new car subsidised by the governent, except everyone bought Kia's and Fiats instead of Brit made cars, so did the UK really benefit?

homelessskilledworker

mrree wrote: »

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Ok, i have jumped the gun a bit .....

............................................ But, i can see it coming very soon.

It is the single thing which will get the economy moviing and get people spending.

That £30,000 car will now be £3,600 cheaper!

Makes sense ... And, mark my words, it is about to happen - do not buy anything big yet!!

give me strength!!

paddyrg

JasonLVC wrote: »

Sorry, the VAT rate cannot be reduced to that level, not even if it was the will of the government.

An EU agreement was agreed in 2010 to set a minimum standard rate of VAT at 15% across all member states. This agreement is up for review in 2015.

http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/rates/index_en.htm
About halfway down, just above the heading "Other Documents on VAT Rates"

So until then, the lowest the standard rate of VAT can be is 15%. The EU also determines what goods and services can be sold at the standard rate, the nUk cannot suddenly say everything can be sold at the reduced rate.

The other rate of VAT (5% reduced rate) is similarly controlled by rules which determine what the lowest rate it can be and equally, the rules are very specific as to what can and cannot be sold under the reduced rate heading.

Spoilsport - bursting the OP's bubble like that! You and your 'facts' ;-)

PasturesNew

In 1978-79 I had a Saturday job in a jewllery shop. Receipts were written by hand and I had two books, one was for 8% VAT, one was for 12.5% VAT. Silver was 8%, Gold was 12.5%.

MrRee_2

The European Community is about to tear up the VAT Agreement - with all countries agreeing to it.

Any loss in Taxation will be made up for in Taxes elsewhere ...... and, the BIGGEST winner of all - growth will spurt, feelgood factor will be there, people will buy and sellers sell.

It's cheap compared to pumping £billions into the Banks who then sit on it and re-distribute it in Bonuses!!

nicko33

MrRee wrote: »

That £30,000 car will now be £3,600 cheaper!

Show your working

chewmylegoff

MrRee wrote: »

It is the single thing which will get the economy moviing and get people spending.

That £30,000 car will now be £3,600 cheaper!

Makes sense ... and, mark my words, it is about to happen - do NOT buy anything big yet!!

ha ha ha.

in all seriousness, and ignoring the OP but tackling the point that cutting VAT will "get the economy moving", the situation is thus:

VAT receipts are about £100 billion per annum. Therefore cutting VAT by 1% would increase the hole in the nation's finances by an additional £5 billion per annum (ok, it doesn't work exactly like that, not least because the VAT rate on some things is only 5%, and for other reasons, but as an approximation it will do).

So, you either borrow £5 billion more, or you raise taxes elsewhere.

To illustrate how this would work, the estimate is that 1p on basic rate tax would raise an additional £5 billion.

So if we were to cut VAT by the most that we can, to 15%, we could need to raise BR income tax by 5% (or higher rate income tax by about 34% for those of you wanting to tax the rich...). taxing people more at source is hardly going to lead to them consuming more, just because the tax on consumption is down...

Of course as an alternative we could just blow an extra £25 billion hole in the govt's finances, increasing the deficit by getting on for 20% in one fell swoop (perhaps the "third way" would be to approximately double fuel duty - that would be popular and definitely kick-start the economy...).

So what would we get in return for this? Well, the best example we have is when Labour cut from 17.5% to 15% which had "no effect on consumer spending" according to PwC.

http://www.guardian.co.uk/business/2009/aug/26/vat-cut-ineffective

that said, i'd prefer to see a report based on some economic data rather than just 88% of people surveyed saying that it had no effect on their spending patterns.