It looks increasingly likely that VAT will rise to help pay down the public deficit.
The first of the TUC’s new regular Tax Briefings tells you everything you need to know about this controversial tax but were afraid to ask.
Why is VAT regressive?
Why is it contributing less to tax revenues than it used to?
And, most importantly, should it rise?
Disclosure: I advise the TUC on taxation issues
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Hi Richard
Although I am in favour of taxing banks more substantially – the government’s currently published proposals do not go to the root cause of the credit contraction crisis (as I have blogged before to your readers, see summary below) I am in favour of VAT-like taxes at a simple 10+10 rate to reduce profligate consumption of consumer goods.
I and many poorer members of society and those without a profligate consumption ethic are shielded by zero-rated food items and the ability to find a bargain (except when it comes to fighting the energy cartels holding prices high as well as many big producers of goods such as insulation).
I live in a relatively poor area with frequent contact and close relationships with these poorer people. I respect them greatly for the tenacity of the breadwinners and often notice that their children may not be helped to understand why they should not cut back on the latest fashion shoes, which may be due a lack of time or of relationship.
This is in stark contrast to the poorer producer nations who cling to life, needing to pay for their health and education from meagre money supply, etc etc.
We can afford a simpler 10-10 consumer tax (VAT + ET) if the half that would be the ET for the Green New Deal is directed to the energy/climate transition needs and half of that returned to the producer nations needs.
I have sent the attachment for insertion (editing) below separately. It was prepared for the Max Fry Conference of economists in 2009. Accountants need to get to grips with the root of money supply – get rid of arguments over interest and DIVERT the base rate to act as a self-governing part of the system.
Why not also get a floor on savings or deposit rates equal to the base rate all round? Wouldn’t that help to solve the pension crisis?
Best regards
Ian
A VAT rise is good news for the Isle of Man
Rubbish! I always thought that English people as creators of economy basis know more about it and that’s why UK is a rich country but increasing of taxes will only cool down the economy. In my mind the best solution is to cut taxes as low as it is possible, stop paying benefits to people who can work but choose not to do it, and reduce number of people who are working and taking money from government. It will increase unemployment for a couple of months but because they will have no money from benefits, they will take any job (just for the beginning) and because of low taxes they will earn similar amount of money. Country will save a lot of money by doing this, and people will be happy because they will have more money to spend and the whole economy will rise instantly because of people who will spend more money. It’s as simply as that. Everybody who knows basis of economy knows that rule…
@Kamil
You may have noticed the fans of this hypothesis created the current crisis
I presumed dinosaurs died out after a catastrophe
You must still be in the death throes
@ Gutbucket.
This is a typical reaction. A VAT rise may be good news for the Isle of Man GOVERNMENT. Not good news for those consumers who have to pay it. I recall when Labour reduced the VAT to 15% and Cameron made the comment that it “a waste of money”. You know what he meant but what a revealing angle on how Government/Establishment regards taxpayer’s money i.e. if we don’t take it off them it’s wasted. I think Manx taxpayers will object to paying more VAT to contribute to over government.
This comment has been deleted. It failed the moderation policy noted here. http://www.taxresearch.org.uk/Blog/comments/. The editor’s decision on this matter is final.
I think the TUC document fundamentally misunderstands the impact of VAT on small businesses.
1) Small, non-VAT registered businesses selling VATable products to end consumers are better of with a higher VAT rate. They may not be able to recover VAT on their purchases but they don’t have to pay VAT on their sales. Assuming they sell goods at the same price as VAT reg’d businesses their profit margin will be higher by the difference between the VAT on the purchase and the VAT that would have been payable on the sale.
2) Small businesses selling to VAT registered businesses can choose to register and are, therefore, on exactly the same position as larger business.
With regard to financial industries; they will be hit by the increase in VAT because, in the main, they are unable to recover VAT incurred on their costs.
@Paul Taylor
Paul
I disagree
VAT non-registration is an advantage for hairdressers and labour only suppliers to the public, I agree
That (hairdressers apart – and even thye can suffer on their rent etc) is largely involuntary self employment
For other small businesses the option of voluntary registration is available -I agree, but adds to the complications for a small business – as I know only too well
If your comment matches theory (and it does) it does not match best advice of small entrepreneurs – and that is more important