Tuesday, 4 January 2011

Why spoil a good VAT story for the sake of the facts.

Well the rise in VAT to 20% is upon us and according to Ed Milliband it will cost families £389 per year. He didn't work this figure out as he just took it from a Liberal Democrat poster from the general election. As this figure is at least eight months old and was based on what the Tories would have to do in order to pay for their other tax promises and as we have had so much turmoil in the government finances, it would seem to me that this figure is out of date. It has not only been arrived at in the most lazy way but is also inaccurate, but why spoil a good story for the sake of the facts.

What does the change in VAT mean to you? It is such a complicated tax that it probably means nothing. It may also mean nothing in practice as many companies will disguise the 2.5% rise by making cuts elsewhere. Have you seen any adverts saying "we pay the VAT"? I have. It is a meaningless advert as the purchaser pays, but adverts often mislead. Maybe sellers will reduce their profits but that's not quite the same thing as paying the VAT.

VAT is not my ideal tax. I know that there is some correlation between wealth and expenditure as I will never be taxed for buying a luxury yacht. VAT is one of the most complex ways of raising revenue but it has the advantage of hiding the fact that you are raising money from earnings. I like simple answers and I also like taxation related to earnings. No government would be popular for shifting VAT totally on to income tax but it would certainly make a lot of lives simpler if we could get rid of a cumbersome system. We may even afford a few cuts in the civil service with no loss of service.

Change the world


  1. My only objection to VAT on the whole is that electric andf gas for household use carry a VAT charge......originally brought in on luxuries, I don't think cooking and keeping your house warm is a luxury

  2. I'm a bit confused by this post (and blog - is the idea to say lots of contradictory things that are said by people to show they are all as silly as each other?). If the rise in VAT means nothing to anyone, then it is like an economic perpetual motion machine, paying for doctors and nurses and weapons and so on without costing anything. Obviously it isn't.

  3. Thanks for both comments. Sea, I think there is so much confusion on VAT that I would go for a much simpler system. Of course you are right. Heating is not a luxury.

    Sorry Matthew to confuse you. I would suggest you take one paragraph at a time. That might help.

  4. I'm sorry Matthew, I see one of the points you are making about the middle paragraph. I will make it clearer. Individuals may know particular items that carry VAT but they won't understand the full complexity of the system or of the items that carry VAT. To that extent we are all confused. So it does mean something. My sincere apologies.