UK facing VAT rise?

vivatifosi

Can't provide a link yet as it it doesn't appear to be online as yet.

Sky has just featured a story on its press preview. The Institute for Fiscal Studies has warned that a VAT rise may be needed to cut the deficit. Looks like it will be on the front page of tomorrow's Telegraph (first edition anyway). Potentially rising to 25%. Commentators said that will not go down well in the Treasury.

leveller2911

vivatifosi wrote: »

Can't provide a link yet as it it doesn't appear to be online as yet.

Sky has just featured a story on its press preview. The Institute for Fiscal Studies has warned that a VAT rise may be needed to cut the deficit. Looks like it will be on the front page of tomorrow's Telegraph (first edition anyway). Potentially rising to 25%. Commentators said that will not go down well in the Treasury.

When it rose to 20% I would say 30% of my customers enquired as to whether or not I could "do anything about the vat?".

Needless to say I said no.I can't risk it but I do wonder how much more it increases the black economy and how it would effect my business.

Graham_Devon

It's only if the government want to reach their fiscal mandate. The dates and targets which, of course, can simply be extended and increased, as seems to be the case for every other financial target at the moment. Bit like the fiscal cliff in the US, if they simply extend it again, the nasty stuff doesn't have to happen.

If this mandate is set in stone however, then yes, extra taxes have to be raised.

I know which I'd bet on happening though, and that would be an extension to the mandate.

Wookster

It would go down about as well as a lead balloon.

Rather than raising taxes, real efficiency cuts are needed. I don't mean the tinkering we're getting overall, I mean the Michael Gove style cuts in his department. The fact is that much much more can be down with much less.

There are bucket loads of unemployed accountants out there (accounting having been badly hit in the recession) - they should be deployed into councils and government departments to find and eliminate waste.

vivatifosi

Morning all, here's a link:

http://www.telegraph.co.uk/news/uknews/9701989/IFS-George-Osborne-may-have-to-raise-VAT-to-25-to-balance-the-budget.html

MacMickster

The downside to a VAT increase is that it is indiscriminate. It takes money from the poorest in our society as well as from those able to afford it.

The upside to VAT is that it is harder for the wealthy to avoid.

If both the minimum wage and benefit rates were increased by 2% (the poor spend less oftheir money on items on which full rate VAT is charged) then a significnt VAT rise would be an efficient way of raising taxation.

JasonLVC

Cannot see it happening and the IFS (along with all the other economists out there) just publish whatever happens to be written down on the nearest brainstorming whiteboard it seems.

A suggested VAT increase that doesn't actually happen might be a possibility - the threat of a VAT rise may be sufficient to get consumers out there on a spending spree and just like petrol duty increases which are proposed, can just as easily be 'postponed' after the Christmas frenzy.

Just a speculative commentary blown out of proportion by the newspapers.

Eellogofusciouhipoppokunu

MacMickster wrote: »

The downside to a VAT increase is that it is indiscriminate. It takes money from the poorest in our society as well as from those able to afford it.

The upside to VAT is that it is harder for the wealthy to avoid.

If both the minimum wage and benefit rates were increased by 2% (the poor spend less oftheir money on items on which full rate VAT is charged) then a significnt VAT rise would be an efficient way of raising taxation.

VAT is a disproportionate tax, which takes a higher percentage of income from the poor than the rich. Food prices are the same for rich and poor, so are utility bills, travel costs, etc.

All this will do is stop people spending and push the economy back into recession. Time the government started looking at ways to reduce the burden of taxation, not increase it.

JasonLVC

Wookster wrote: »

It would go down about as well as a lead balloon.

Rather than raising taxes, real efficiency cuts are needed. I don't mean the tinkering we're getting overall, I mean the Michael Gove style cuts in his department. The fact is that much much more can be down with much less.

There are bucket loads of unemployed accountants out there (accounting having been badly hit in the recession) - they should be deployed into councils and government departments to find and eliminate waste.

Excellent post. The government have been tinkering, thats all.

Osbourne needs to do something about the big firms shifting their profits out of the UK. We've had a one-off banking tax imposed on bank profits in the past and one on north sea oil, so why not another one-off tax based on profit BEFORE costs involving overseas subsidiaries (ie, you can still net off costs against genuine costs incurred in the business, but any royalties or management charges are ignored).

Plus we really really really need to stop giving away billions in aid. Give some by all means to keep the local militia down, but charity begins at home and our third world friends will just have to make do for a few years whilst we sort ourselves out.

MacMickster

Eellogofusciouhipoppokunu wrote: »

VAT is a disproportionate tax, which takes a higher percentage of income from the poor than the rich. Food prices are the same for rich and poor, so are utility bills, travel costs, etc.

No VAT is charged on food. Lower rate (5%) VAT on gas and electricity and at 0% on bus fares, childrens clothing etc.

As I said, increase benefits and the minimum wage by 2% to assist the poor with the small amount of their spending on which they do pay VAT.

As people get wealthier, however, then more of their spending is on discretionary items on which VAT is charged at full rate. For those who avoid or evade taxes on their incomes, VAT is an excellent way of collecting tax when they actually spend their money.

JasonLVC

Eellogofusciouhipoppokunu wrote: »

VAT is a disproportionate tax, which takes a higher percentage of income from the poor than the rich. Food prices are the same for rich and poor, so are utility bills, travel costs, etc.

All the items you mention - food and public transport are zero rated for VAT and utilities are at 5%, so any proposed VAT increase would not effect any of these things.

Are you saying that you want these things to be cheaper for poor people or are you saying that becuase they are the same price they affect the poor disproportionately?

If the later then surely that applies to everything (holidays, beer, pait and wallpaper, etc) regardless of VAT or taxes?

If the former then the essentials such as food, public transport and rent aren't higher due to VAT