Measuring the VAT squeeze

It's a pity that much of this will be paid by those who add most value.

Is someone going to edit that third paragraph?

[is/isn't error, I think ...]

This comment was removed because the moderators found it broke the house rules. Explain.

It is no surprise at all that the effect of the VAT increase is regressive.

The Tory economic dogma is that general prosperity is held back by the burden of the taxes the rich are expected to pay to the support less fortunate citizens. Quite untrue of course. Giving the less fortunate the support and opportunity they need, enables them to contribute more to the economy.

This dogma has nevertheless survived unaltered since it was used to justify the replacement of the poor law by workhouses.

The regressive nature of the Chancellor's tax changes is exactly what those who voted Conservative last May should have expected.

If being in the poorest 10% is as bad as some people make out then I wouldn't think they would have much money left to spend on highly VAT-able items.

Maybe it is time for the poor to change their spending habits?

What is hilarious to me is that the BoE and US FED are sending the food shopping bills of the world through the roof and we're crying that we have to pay 2.5% more for a new washing machine.

VAT inflation is really a non issue when the price of basic food and commodities is sky rocketing due to actions of central banks. I just wish that a loaf of bread would stop going up in price every month.

Without doubt, we are the most taxed population on the planet!

Unless I'm mistaken Banks can't reclaim VAT either. So this is a tax that hits Banks but not ordinary businesses.

Are we talking disposable income after the basic essentials have been deducted because for poor families this is a much smaller percentage of total income and therefore the additional costs of VAT will be a much higher percentage. Compared with income/wealth tax VAT is severely regressive. Everybody has to pay VAT but many do not pay income tax or very little. Inequality of wealth and income will become more extreme with this government very quickly and will add to the factor that the poor and economically weak will also not be able to recover the continually worsening disposable income position caused by the underlying inflation in living costs. There is a growing understanding that this government is about re-inventing the 'poor law' regime and people will say "Come back Mrs. Thatcher all is forgiven"! Well perhaps not but you know what I am getting at.

Government raising vat does not take money out of the economy just places more in central hands. Those whose jobs depend on government spending should welcome it. That's not just civil servants the health and education, justice and defence services but also all those involved in infra structure improvement roads and transport services. No point whinging about fare increases if you're not willing to pay the tax.

We only have VAT for three main reasons:
1)The French did not want the UK to join the EU - so Heath agreed to anything and everything to prove them wrong.
2) 1973? VAT introduced at 10% ... effectively as a condition of the UK joining the EU
3) It is a hideous tax avoided by many businesses and is a post income tax, tax
But we should not blame G. Osborne - he has to manage the Labour financial legacy in a compressed time frame and without and fully integrated national economic financila strategy and national sustainability index ... a VAT increase is an obvious and 'easy' lever to pull.
But the VAT increase is inflationery and will lead to UK base interest rate increase(s) this year and is teh dierect result of our UK government not having appropriate advice on indirect taxation ... particularly a rebalancing strategy for UK import and export tariffs viz a viz more VAT exemptions, increases, abolition.
George Osborne needs to think carefully and he can rescue this situation in the March budget ... he can bring in a full revision of VAT and import and export tariffs and e.g. increase VAT to say 50% of foreign built 4x4's but at the same time reduce the blanket VAT level to say 5%.
This will take inflation down, avoid interest rate rises for an extra year or two and be revenue neutral or even increase VAT/indirect taxation revenues.... AND
..rebalance the UK economy using tax policy instead of credit relaxation and money (printing) supply.
VAT as it now stands is very damaging to the UK and needs urgent revision.
Many people avoid paying VAT as VAT registered and by fraud ... the BBC analysis is, I'm afraid, somewhat misleading here.

Labour's Milliband and Johnson are sounding ridiculous as usual ... Labour would have increased VAT just the same

Suppose that once a week 10 men go out for a beer together having been friends for years. The bill for them all comes to £100. However, some of the men had no jobs and one was now very wealthy. They agreed to pay for their beer the way they paid their taxes and claimed their state benefits. The first four men (the poorest) would pay nothing. The fifth would pay £1. The sixth would pay £3, the seventh £7, the eighth £12, the ninth £18 and the 10th man (the richest) would pay £59. The ten men drank in the pub every week seemed quite happy with the arrangement until, one day, the landlord caused them a little problem. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your weekly beer by £20.” Drinks for the ten men now cost just £80.



The group still wanted to pay the bill the way we pay our taxes. So the first four men were unaffected. They would still drink their beer for free but what about the other 6 men; the paying customers? How would they divide the £20 windfall so that everyone would get his fair share? They realised that £20 divided by six is £3.33 but if the subtracted that from everyone’s share then not only would the first 4 men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer.



So the landlord suggested a different system. The fifth man, like the first four, now paid nothing. The sixth man now paid £2 instead of £3. The seventh paid £5 instead of £7. The eighth paid £9 instead of £12. The ninth paid £15 instead of £18 and the tenth £49 instead of £59. Each of the last six was better off than before and the first four continued to drink for free.



But, once outside the pub, the men began to compare their savings. “I got only £1 out of the £20 saving,” declared the sixth man. He pointed to the tenth man, “but he got £10.” “Yes that’s right,” exclaimed the fifth man, “I saved only £1 too. It’s unfair that he got 10 times more saving than me!” “That’s true!” shouted the seventh man. “Why should he get £10 back, when I got only £2? The rich get all the breaks!” “Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new system exploits the poor!”



So the nine men surrounded the tenth man and beat him up. Funnily enough the tenth man didn’t turn up the next week for their regular drink, so the nine sat down and had their drinks without him. But when they came to pay for their drinks, they discovered that they didn’t have enough money between them to pay even half the bill.



That’s how our tax system works.

The poor will pay the biggest % of the VAT increase , Red Ed said so...

Thanks SF for confirming like Brown he is full of ......

The government is raising an extra £12.1bn in 2011-12 from increasing VAT to 20%.

This is a drop in the ocean that the government need to allow for when the banks fail to repay SLS this year. This is inevitable. Bank crisis mark 2 may possibly be minimised by "extending" SLS by deferring payments by (initially) a year.

I am not normally political but is the economic reality that the tax and cuts will be used entirely for this purpose?

6**

Its not TRUE but it does feel like it .

We need to get away from kinder garden politics and have a grown up discussion on the overall tax take , currently approx 40p in the £ . I would suggest it should be 30p in the £ with a further 5p in the £ going into a reserve fund for truly unforseen events ...

"In that old-fashioned sense, the tax change is regressive." - "old-fashioned sense"? No - that IS what is meant by regressive. The good old "culture of contentment" speaks again.

And speaking of which, today's Times front-page claimed that the poor would not be hit because essentials such as food and children's clothes are not subject to VAT. Anyone who swallows that is being naive. All goods have to be transported and most goods need packaging, all of which IS subject to VAT. And transport costs have also been hit by the recent increase in fuel duty. We will ALL be paying more, from the poorest to the richest, and the poorest, as always, will be paying a higher proportion of their income than anybody else.

8**

All income is disposable . One could argue that every of working age should pay a fixed amount of tax,after all everyone has equal rights to government services. The further we stray from this simple model, the more complex the tax system needs to be to target the "Right" people.

Honestly Bob that is the worst description of a tax system I've ever heard.

#6 14 very true and we get very poor services for it as well , just look at the rubbish lack of collection services and lack of gritting

another brown legacy

Bob Curtis seems to know as much about the tax system as he does about how publicans work.

#15 for 13 years around 8m were allowed to live of the state of a "wage" of around £25K whilst others were allowed in to do the jobs they would not do. Also money was wasted on education as apparently we do not have the right mix so have to let more in.

Fix this and we would not have been in such a dreadful place.

Brown and Blairs legacy again

#17 Mocara

It would be very helpful for my education for you to refute my little story. I am available for conversion!

This article assumes that retailers and other suppliers only pass on the VAT increase. In reality, profit margins have been squeezed for so long that many companies will take the opportunity to increase prices by more than 2.1% over the coming weeks, blaming both the increased VAT and higher commodity prices.

#11: What might have been a better suggestion would be to reduce each man's contribution to the pot by the 20% the landlord had allowed.

Those with no income pay nothing, and the rest who can afford something all pay a reduced amount, keeping the same proportions they pay towards the total.

Yes, the £59 chap now only pays £47.20, so he has the largest monetary reduction, but he's still paying well over half the total bill, which was the whole idea in the first place.

The Big Society... So what is that about tax?

Consider that tax is collected to be disbursed by the elected government to pay for the things society wants.

So it therefore follows that bullying us all into 'donating' to charity, which underlies the big society, is a tax replacement therefor it is a tax.

Except of course it is an unfair tax, a worse than regressive tax, - just like the National Lottery!

VAT is a less bad a regressive tax than charity 'giving' or the Lottery - but it is far less fair than income tax - perhaps the most progressive of taxes (or it used to be!)

If we need to reduce spending to meet our reduced national circumstances we should cut the pay of all civil servants and government employees in a fair way and not make a few redundant!!!!!

But I don't think the reduction of inequality is part of the Tory agenda any more than it is of Labour! (but shouldn't it be!!!)

VAT has to increase, perhaps they could have put it up more gradually to 20%, but it needs doing, it is one of the fairest ways, it hits everyone the same, and those who buy less pay less. Labour are the ones guilty of rank hypocrisy, and the ones who have forced Mr Cameron to increase. Don't blame the Coalition, blame the Labour party, they have left us with the deficit

The Increase in VAT is a drop in the ocean compared to the inflation tax that is coming to our nation this year.

The money raised is a trifle compared to the deficit and the debt.

The problem is not insufficient taxation but too much government spending, which so far the coalition has been alarmingly slow at tackling.

21 Bob you are spot on with your description, but you are whistling in the wind if you think that you are going to get rational debate here.

A big part of the economy goes untaxed. Underground, paralel, and other denominations, e.g. nail varnish shop accepting cash only and declaring only half of their real income. Are these economic players hit by any tax? Most likely they will be hit only by VAT and Petrol duties. Welcome VAT increase a Petrol duty increase! That makes it a fairer system.

#21 He will not be able to as it blows away the lefts arguement that you can tax the rich as much as you like and they will still keep paying.

Understand the stone went into exile as a result of wilson and co taxes.
made a good ablum as a result to. Many modern "stars" DO THAT and claim also to be supporters of ideas of the left ireland has some particular example. Greed of the right seems to also effect the left but they do not like to here that either

#24 ok keep paying them for doing non-job and racking up a pension crisis too. Smart move

lets just get ride of them if they are earning more than £50k then

Well I'm not sure that I agree with the whole progressive/regressive argument anyway as it seems to take as read (red?) that socialism and equality of wealth is progress and to my mind that is open to debate. Was it Labour's pursuit of 'progress' that gave us the current huge government debt?

That aside, as I see it VAT is a tax on consumption, and it could be argued that consumption/spending power is a better barometer of wealth than income or assets. After all someone on £40k a year in Newcastle has far more spending power than someone on £40k a year in London, yet in terms of income they would be taxed equally. Is that fair?

The fact that most of the essentials in life are zero-rated means does provide a measure of protection to the poorest. Also if you are on benefits and not at work, you have more time on your hands to shop from the market and who knows if you are even paying VAT. All in all I'm far from convinced that the poor will be hit hardest.

24. At 5:29pm on 04 Jan 2011, John_from_Hendon wrote:
"So it therefore follows that bullying us all into 'donating' to charity, which underlies the big society, is a tax replacement therefor it is a tax."

All taxes are taken by force to be given to others as charity. Just because the government administers it does not change this. Taking tax money to pay for a government worker to do a job that you do not want them to do is still charity. Paying for someone to have NHS treatment that they could not afford themselves is still charity.

**11

Suppose that once a week 10 men go out for a beer together...

Of course what should happen (in an ideal world) is that the four poorest should be out looking for work and not drinking in the pub, two should be on halves, three should have their pint if they wish and the richest should drink as much as he wants, or can afford (why not, he's earned it?)

The great evil of the past which haunts all these debates today is that people used to be locked into their roles and incomes for life via the class system. That no longer exists and everybody nowadays can aspire to any level they wish through hard work and individual talent.

Sorry, Stephanie, but there is a rather better analysis of this question by your colleague Laurence Knight here https://bbc.kongjiang.org/www.bbc.co.uk/news/business-12111507
Basically, whether or not it is regressive depends on how you choose to define regressive. As the IFS says, it is rather odd to use the traditional definition (on an income basis) for a tax that is levied on spending. Also, the bottom income decile is a very mixed group containing many people who are not poor in the normal sense of the word. To give just one example, if I have just retired and downsized from a £500k house to a £150k house and am living off the proceeds, I may well have a very low income but am hardly what most people would describe as poor. It also includes people on gap years and sabbaticals. All in all, any analysis that relies on the figures for the bottom decile to prove the VAT rise is regressive should be treated with extreme scepticism.

Bob Curtis, I posted the same analogy three weeks ago but had it retrospectively removed by the moderators. You are spot on with your analysis vis a vis rich bashing all the time.

However, I don't think you could seriously argue for any tax change to take more from the poorest than the richest as a proportion of their income. Unfortunately VAT does exactly this (despite the exemptions on food, kids clothes, and reduced amount on energy bills). It also reduces consumption because it increases the cost of all goods and services. Finally it targets small businesses and traders disproportionately because if they are below the VAT threshold (£70K) they are faced with all the admin nightmare of having to be VAT registered to be able to claim back VAT on purchases and remain competitive with VAT registered businesses. It's a complication to the tax system which only the burocratic like (hence the French love it).

A fairer system is definitely income tax reform and the best idea I've heard so far from any party is the pre-coalition lib dems raising personal allowance to £10K to help the poorest workers most.

When it comes to paying plumbers, builders etc for work done it's amazing how quickly VAT vanishes for cash in hand. After all who needs the hassle of all that paperwork. Lets face it this solution been going on since VAT was introduced so if both parties are happy I don't see any problem.Thing is our undead, unsmiling chancellor probably won't see it that way, but that's his problem. Chances are a lot of politicos do this anyway.

VAT is definitely my favorite tax.

It's close to being an optional tax - one only people with excess disposable income pay.

Unfortunately the list of 0% rated items bears no resemblance to what any normal person would put in a basket of 'essential' items,

For example,

Water + sewage = 0% (Good)
Helicopters, Plane and Boat sales = 0% (Seem distinctly like luxury items)

11. Bob
Well Bob. Thats an excellent analogy/story. Im not sure what planet let alone country it could refer to though. Heres why.
1. You say that the four men who have no jobs are happy to pay nothing for their beer. Perhaps a little time spent trying to support a family while living on benefits would allow you to understand the complete loss off self esteem unemployment causes. Along with the fact that most beer would be drunk at home due to the cost of a pint (rising to an average of £3 a pint here on earth.). Also you may not be aware of how unemployment causes depression and spikes alcoholism. None of this to my mind would result in the word........ happy.
2. You describe a number of the men arguing about savings. This I presume is the activity of putting money aside every month. In a realistic scenario I would suggest that a majority or large minority have no money left at the end of every month to save.
3. You describe a situation where the rich man gets beaten up. Of course in reality they are protected by the law. The majority support the conservative party. Some even donate to the party and have association. Some....of the very wealthiest even get to work for the conservatives and give advice on how they can save money. While themselves pay some of their employees a barely liveable wage and avoid paying millions in tax.
4. You suggest that the rich man wouldn’t go to the pub any more with his unemployed friends. And insinuate that if it were not for him they couldn’t afford to drink. Of course in reality the rich man needs his bins emptied. He needs his drains unblocked. He needs his children to be looked after in a nursery. He needs the postman to deliver his post. He needs the supermarket checkout girl to scan his food. He needs the factory worker who packages his toilet roll so he can wipe his backside.
5. In fact he has completely lost his ability to understand the word community and society. He much prefers to pontificate rather than accept the immoral reality of deep and suffocating austerity for the masses and as you were for the wealthy.

33. Striver
The great evil of the past which haunts all these debates today is that people used to be locked into their roles and incomes for life via the class system. That no longer exists and everybody nowadays can aspire to any level they wish through hard work and individual talent.
-------------------------
Thats right striver. All these lazy people in low income jobs not working hard. We could all be lawyers and doctors and all the essential menial jobs would be done by the magic hard worker fairy. And anyway who cares about the stress of putting bread on the table when you have aspiration to keep you happy.

VAT is an inherently regressive tax. The poor have to pay it. The rich can choose not to spend. Then they can invest. The result is that they wind up better off.

. At 4:51pm on 04 Jan 2011, hughesz wrote:
"The poor will pay the biggest % of the VAT increase , Red Ed said so...
Thanks SF for confirming like Brown he is full of ......"

There are questions of fact and questions of opinion.That the poor will pay a higher proportion of their income on VAT than the rich is fact.The IFS says so,so does Ms Flanders.That the rich will pay more VAT is also fact because as Scott Firzgerald remarked,the rich are just like us,except they have more money.So VAT is regressive in a proportionate but not an absolute sense.

I would avoid making nonsensical political points or parroting SF,it makes you sound more stupid than you are.

Funny how Deloitte' are the only 'experts' saying it hits the poorest least. Every other economic organisation say it hits the poorest twice as hard as the richest 10 per cent. So where are Deloitte coming from? Bit of 'nudging' the figures I think

25. At 5:45pm on 04 Jan 2011, saucey1105 wrote:
"VAT has to increase, perhaps they could have put it up more gradually to 20%, but it needs doing, it is one of the fairest ways, it hits everyone the same, and those who buy less pay less. Labour are the ones guilty of rank hypocrisy, and the ones who have forced Mr Cameron to increase. Don't blame the Coalition, blame the Labour party, they have left us with the deficit"

Little Saucy,it doesn`t hit everone the same,the poor pay proportionately more of their income,the rich pay more absolutely because they have more money.

Did the labour party leave poor Mr.Cameron with the deficit?I had naively thought there was a banking collapse across the world, which governments in the USA,the EU and Japan had to rescue getting big debts in the process.Don`t we own some of them now? I wonder why that is?

Oh dear,I`ve got it wrong again.I should have known,it was that Mr.Brown who buzzed around the globe like a bee stinging bankers in an delicate place just as they were about to make us all rich. Oh dear,I never twigged.Back to the WI,the economics lecturer is really dishy,well,I am 43.

to answer no 36 a builder who buys supplies for a job pays the vat at the merchants, so by taking cash saves the customer vat, but loses what he pays at the supply yard. it is done to save people money on a job that has already accrued 3 layers of tax and 2 council enforced charges, plus professional fees(ie architects, build regs, planning) all of which are subject to vat.

Deciding whether a tax is 'good' or 'bad' based on its size relative to income is fundamentally flawed.

If I have £100 million under my mattress, and sit around in my £5 million mansion watching TV all day, I'm classed as 'poor' based on my income. So if I spend £100 more a year due to VAT increases, that's a VAST proportion of my income (which is zero).

Similarly, pensioners (who have lower expenditure) are often classed as 'poor' - a single pensioner who "earns" £10,000 a year from pension/interest, and has no debts or housing costs at all, is "poorer" than a young parent who earns £18,000 a year, but has to support a partner and 3 children and a mortgage/rent.

Surely a far better way to judge whether someone is poor or not is to look at their 'non-essential expenditure'. The young parent will have a much lower non-essential expenditure than the single pensioner or idle millionaire, so they can be classed as 'poorer'.

The VAT increases will affect those with low non-essential expenditure less than those with high non-essential expenditure. Thus, it could be classed as 'fairer' than an income based tax.

BTW - I *DO* think that the classes of items which are zero-rated should be reconsidered. Basic hygiene products should be zero rated, for instance.

24. At 5:29pm on 04 Jan 2011, John_from_Hendon wrote:

"VAT is a less bad a regressive tax than charity 'giving' or the Lottery - but it is far less fair than income tax - perhaps the most progressive of taxes (or it used to be!)"

Income tax is a 'progressive tax', but that doesn't mean it's a "fair" one.

Consider two people earning £20,000 each. The first is a single person who bought a house 10 years ago for £50,000 so has a £200 pcm mortgage. The second has a couple of kids and a wife to look after, and entered the housing market 4 years ago, couldn't afford a £200,000 mortgage so has a £700 pcm rental bill.

Both will pay the same tax, but is that "fair"?

Could it not be considered "fairer" to look at the disposable income of the two people, and tax the first one more? That's what a 'non-progressive' tax on expenditure (such as VAT) aims to do.

Both systems are 'fair' for some definition of 'fair'. In general, people will consider whichever system they lose from least as the 'fairest' way.

I dislike the emotive terms 'progressive' and 'regressive' when related to taxation, as 'progressive' implies 'good', but that is not necessarily the case. Instead, use neutral terms - 'income related taxation' or 'expenditure related taxation'.

As usual, islandic myopia sets in when discuss anything in this country.
I understand that Germany has 19% VAT, Belgium 21% and France and Italy over 20% VAT.
If I have got these figures wrong I am sure someone will correct me.

The trouble with this country is that we expect high standards of public services but aren't willing to pay for them.

So far no politicians have had the guts to tell us this unpalatable hometruth.

As a result we live in Micawberland.

In Germany and Sweden more than 50% of salary can go on the various forms of taxation and health cover.

Its time we swallowed the medicine and got real.

reduce income tax for low earners, and give everybody 1 orange.

10. At 4:37pm on 04 Jan 2011, nautonier wrote:

But the VAT increase is inflationary"

*All* tax increases are inflationary.

Income tax (a 'progressive' tax) increases lead to increased wage demands, which lead to increased labour costs, which lead to higher prices, which lead to inflation.

you people worry about money to much. who cares what vat is...make petrol £200 a milli litre.walk every where.eat less.enjoy life..say boo to the con dems and the rest of them.go out and have a laugh.

Yes, I know about the VAT squeeze, and I think it's shameful because it will squeeze the poorest of the poor when the squeeze should be on the investment banks that caused the financial crises.
However, I have also noted with extreme pleasure that the UK's major banks will each pay hundreds of millions of pounds to the UK government each year. It's about time! I would've preferred cordination with the EU, Brussels, but nevertheless, this is great news, and may serve to get the VAT under control in the near future.
The bank levy, which aims to raise GBP 2.5B a year from 2012 is part of the government's 2011 Finance Bill. The levy will go into the general tax pot to fund government services. It will not be set aside as an insurance fund against a future crisis. It applies to about 30 to 40 UK banks, building societies and UK operations of foreign banks.
Top listed banks,
- RBS,
- Barclays,
- HSBC Holdings,
- Standard Chartered
- Lloyds Banking Group.
Now, comes the hanky-panky, as in let's soften the deal for these poor, stressed, investment banks: Some of the extra burden will be offset by a gradual reduction in the corporate tax rate, which will drop to 24% in 2014 from 28% now. Well, I guess that could have been worse.
Under the final bill, banks in 2011 must pay 0.05% of their balance sheets. So, you can bet that threse investment banks are going to get their legal departments hard to work in reducing the size of their balance sheets!
From 2012, the levy will be 0.075% and permanently remain in place. Chancellor of the Exchequer George Osborne first introduced the plan in June, but the final calculations of how much banks will pay were only just released. France and Germany in June agreed similar measures that the countries are in the process of enacting.
The government has said it will also seek to introduce a Financial Activities Tax on bank profits and pay, and is looking to get other countries to do the same. Yes, way to go. Now, you've got the banks just about where you want them!
U.S. President Barack Obama proposed a levy for large banks in January, but it wasn't included in recent legislation on financial sector reform, and Senate Banking Committee Chairman Christopher Dodd in August downplayed the possibility of it being included in future legislation.
Not going will happen in the United States where banks (9 of them) run the country, but then the US and its finances should not be a UK problem.
The UK levy will hit several large US and European banks operating in the country, but will only apply to their UK balance sheets.

A lot of pointless wittering that will change nothing.

No tax system on income or expenditure can be 'fair' because we will never agree what fairness is. In the end those with the most income/expenditure will probably make the biggest cash contribution.

And that's about all there is to it.

@47

50% of your salary DOES go on taxation and healthcare!

A basic rate taxpayer pays 20% PAYE + 12% NI + 20% VAT + approx 5% on Council tax = 47%. And you can probably make up the other 3% in fuel duty.

An upper rate taxpayer (anyone earning over 35k from april) pays more than that, maybe up to 65% depending on how far over the limit they are.

oops, bad maths. 20+12+20+5 is of course 57%! See, you're even worse off than you thought!

Lets get it straight...nuLiebour over spent OUR money, spent a lot unwisely, hid a lot of debt of balance sheet...WE HAVE NO MONEY!!!
Too much debt, too much of the tax take is being used to service this debt. Countries that buy our debt were and even may be worried that we would not be able to pay it back - hence threat to borrowing rates, both sovereign and indviduals. Something has to give. Think of the country as an indivdual going to seek help from Citizens Advice bureau. If your in debt, sort it out, dont hide, speak to your creditors, pay back debt, dont borrow anymore and rob peter to pay paul.
We have to cut (start with waste, god knows we all know their is loads in public sector inc PFI's), raise taxes - yes %wise it is argued that poor pay more, but in £sterling amounts the better off pay more as they spend more, especially big tickets stuff. Lets get it straight, Labour always spend too much, believing state and they know best...and Conservatives have to cut and raise taxes to get books rebalanced, before tax cuts. Difference this time, is Coalition will ensure more of the tax cut's will fall on lower paid, hence fairer redistribution.
Labour tell us in detail your alternatives, to me its denial in 2010, now 2011 (its too soon) so WHEN? Let me and independent analysts see what you would do!!
Happy New Year its gonna be tough, but you have to be cruel to be kind.

The zero rates on essential items such as food and childrens clothing and reduced rate of 5% on domestic fuel provide a measure of protection for the consumer. So increasing the basic rate isnt as progressive as it first seems on the individual. The increase in the basic rate will raise revenue from banks and other financial services sector businesses which cant reclaim VAT, expecially given the trend to outsource and make border service charges (so save corporation tax), which many would see as ggod news. The biggest losers are charities and the education sector who are already being hit by significant funding cuts.

#55. pensionsdimolished wrote:

"Difference this time, is Coalition will ensure more of the tax cut's will fall on lower paid, hence fairer redistribution"

I applaud your optimism! I fear that all politicians and our permanent government (the civil service) are really only about feathering their own nest and don't actually give a fig about the people so long as the ones that need re-electing get re-elected.

I suggest that the way to judge the success or otherwise of a government is to ask the very simple question: is the country a more equal place now than when they were elected? Do you agree?

#46. Paul wrote:

"I dislike the emotive terms 'progressive' and 'regressive' when related to taxation, as 'progressive' implies 'good', but that is not necessarily the case. Instead, use neutral terms - 'income related taxation' or 'expenditure related taxation'."

[first see #57]

I assume from your sentiments you would agree, am I right? However we are stuck with the terms regressive and progressive aren't we? I don't know that 'income related taxation' truly encompasses all tax's that are included in the term progressive, such as Inheritance/Capital Transfer Tax and stamp duty etc.

There are essentially two classes of 'expenditure taxation' too: first that on essentials that is unavoidable and the second on discretionary expenditure that by definition can be optionally avoided. The wealthy generally spend more of the type two expenditure and the poor type one - hence the idea of different levels of VAT on luxuries and children's clothing for example.

The terms progressive and regressive mean rather more than your alternatives, do they not?

Raising VAT will raise £12.1 billion per annum.
Tax avoidance through tax law loopholes costs £120 billion per annum.
The number of tax inspectors is to be decreased.
What planet is George Osborne on? Certainly not the one that most of us inhabit!

some time ago there were people at IFS who held it was better to look at expenditure and not income at all, e.g. To measure living standards. So I agree VAT might be in relation to typical expenditure. But what gobsmacks me is these figures on the income distribution. Is 50K a year really in the top 10 percent of households? In London this would not buy a garage. And however do households pay for children, cars, satellite TV and holidays which most seem to have, with a median income of 26-27K? with or without 20 percent VAT...

Just for clarity, VAT is only paid by consumers ( the end user of a product/service). Companies collect it on behalf of the goverment, and VAT inspectors have the most incredibly powers, quite terifying if you get on their wrong side.

What this means for any zero rated supply ( food) or any exported goods, is that the VAT just gets transferred from company to company and reclaimed by the last company in the queue, so a rise in fuel VAT should not effect the cost of food in any way.

In many ways it's a very clever tax, as it is optional: if you can't afford the luxury goods, don't buy them. Where this breaks down is that it should only be applied to luxury items, not those essential for living.

As ever subsequent goverments have distorted it to apply it as a general revenue raiser, increasing the scope of luxury goods to include fuel for transport or heating your house.

So good tax, poor implementation.

#57
I suggest that the way to judge the success or otherwise of a government is to ask the very simple question: is the country a more equal place now than when they were elected? Do you agree?


Your right im optomistic, better than being pessimistic, but not too cynical...
Right now, as I keep saying - the UK is in the 'crapper'.
I am not seeing too much difference, yet. I know with the current sales and some retailers/restaurants absorbing the VAT rises, it will be a slow burn. I am though feeling the rise in utilities, weak pound costs us more on imports, but helps exports. I can control some of this (put another jumper and thermals on). We need to ensure the review into energy companies is open and honest.
Lot's of what came out of the recent budget only just starting to come through. Lost my job before Xmas, but got a new one within a week, jobs are out their. (I'm from the squeezed middle). Other tax rises are coming over next 24 months ie Child benefit loss etc. I'm a HRT, wife part-time. Therefore me having control on expenditure tax not the government 'taking it' makes me feel better than NI or Tax (same thing).
Whether its a more equal place to me its too soon, there are another 4 budgets to come, no doubt when financial markets have calmed down in 2-3 years, our defict reduced, a cut in taxes is welcome. I am a believer, if you lower taxes, the tax take goes up, if you lower taxes guess what, tax reliefs fall too, so wealthy and wealth creators don't have incentives to avoid or move abroad.
I would be interested in figures to show VAT on ALL goods at say 2.5%-5% versus the current NIL, 5% and 20% - lets simplfy ALL taxes!!
Hope that helps...

Just another point: if you are VAT registered, you should be able to reclaim all input VAT. So a charity which has costs, but no sales should be able to reclaim all the VAT from it's costs.

Ditto banks unfortunately.

Small micro (non VAT registered less than 80K turnover) businesses will be VAT victims, as their costs will go up, but they can't reclaim the VAT element.

So as far as I can see, most charitys and all financial institutions will not be effected.

Some people may be ' rich ' because they inherited it from Daddy , or married it , etc .
Others may be ' rich ' because they work hard , do overtime , do several / any jobs ; but drive old bangers , holiday in the local park , have no gadgets , live thriftily . Why should they be constantly scorned for their efforts ? Not all ' rich ' are born lucky or cheating the taxman or grinding the faces of the poor - some just worked long and hard and watched the pennies .

Yet another broken pre-election promise from the fibDem coalition! It is clear that the party election manifestos are absolutely worthless! What happened to the "We have no plans to increase VAT" missive?

Why can't we for once, have politicians that tell the truth?

I will never vote Tory or for that matter Lib Dem again! They are not worthy of our votes.

65. At 11:30pm on 04 Jan 2011, TonyXX wrote:
Why can't we for once, have politicians that tell the truth?

**********
Every now and then we do. And they get pillared by the press, and nobody wants to vote for them, becuase the majority just want to hear good news.

I think we get the politicians we deserve...

I chuckled quite hard then choked on my corn flakes this morning as I heard that this £12-13Bn hike in VAT was 'crucial' to deficit reduction.
I couldn't help wondering about the £850Bn bank bailout and the £107 million paid to consultants for advice?
Would it not be simpler, fairer and demonstrate stronger leadership; if the government were to retrieve (by legislation if need be) from the banks just a small part of the money taxpayers are owed and reduce VAT to the fairer level of 15% again, so that ordinary people aren't subject to a perpetual tax hike over the next 3 years as other credits are stopped?

The Tory way

Keep the rich, rich and keep the poor, poor.

I voted lib dem hoping for them to help us students and such, but ofcourse not nothing like a little bit of power to go straight to the head and go with anything the Tory party say.

All taxes are regressive to the people that pay it.
All subsidies are regressive for the people that fund them.
However spending more that you earn is the ultimate in regressive economy strategies as ultimately you own nothing.
We have to bare the pain of spending too much for last 10 years, we cannot keep on passing our debt onto our children.

#65 We do have politicians who tell the truth. "We have no plans to raise VAT" can be translated into simple English as "we have not yet finalised our plans to raise VAT". Simple!!

Points to remember in this discussion on VAT:

1) The original introduction of VAT was by a CONSERVATIVE Government!

2) That VAT was introduced to appease Europe.

3) If Cameron wanted to be "fair", he'd start by paying tax on his PM income like everyone else!!!

They are the Tories - what the hell did everyone expect?!?!

If they really wanted to make a difference, they'd close the Tax Avoidance loopholes. Second, they'd tax the bankers who created this mess and wave them goodbye as they leave.

Finally, we need INDUSTRY. The only reason Germany is getting out of this so well is because they MAKE THINGS and EXPORT THEM. What industry does the UK have that ISN'T foreign owned?

I'm very disappointed with this blog of late. It would be nice to have heard something of the economics of taxation. Maybe the whole subject is considered too political so bland is the order of the day.

The progressive/regressive model has been blindly adopted by journalists from politicians. Our society's concept of progress is deeply rooted in the philosophies of the enlightenment but the current usage in politics is a variant which comes from Marx (originally Hegel), i.e. the view of history as dialectics.

Blindly accepting terminology is incredibly stupid. It allows framing the context which is a form of begging the question. Can people please just read a bit of history of thought. It allows you to see false arguments a mile off.

A progressive view of history is one of the forms of scientific positivism which I consider to be somewhat naive. Even a pure technocrat will argue that engineering is as important as empiricism.

https://en.wikipedia.org/wiki/Progress_%28history%29
https://en.wikipedia.org/wiki/Positivism

@71 - Stratosphere:

I might add a fourth point to your list - if I may - which is that each and every time the VAT rate has been increased it has been a Conservative government which has raised it (attempts to argue that Darling's reversal of his temporary cut constitutes a rise won't wash because the cut was always known to be temporary).

The Tories prefer VAT over income taxes for a simple reason which is that it costs higher earners (more typically Tory voters) proportionately less than lower earners (typically not Tory voters) since the higher earner tends to spend proprtionately less of their income.

VAT is not a progressive tax. Any and all attempts to suggest otherwise are really quite insulting. Most people know that.

You write "On that basis, they were able to tell me what the impact would be on different families' weekly expenditure, if they tried to buy the same goods as they were before."

But, of course, they won't be able to buy the same goods. They have only the same amount of money they had before, so they will be spending the same while buying fewer goods. On the large scale, that will result in less need for retail sales help, and some people will lose their jobs as a result. You will see an increased revenue from the VAT, but a decrease in income tax revenue and an increase in unemployment payment expenses.

Be in no doubt - the Tories have finally got what they have wanted for years - a 20% VAT rate.

In the early 1980s there was an internal Tory policy campaign floated called "20-20 Vision" that aimed to set a 20% VAT and a 20% base income rate to load the tax bill away from high earners to create "incentives" - i.e. a massive tax loophole to allow the rich to avoid paying tax.

Unlike almost any other tax, VAT is paid by businesses on what they buy in and charged by businesses on what they sell, then they only pay the Excise the balance in tax. This means that every business owner can reclaim most if not all of the VAT they pay and they simply sneak in their personal VAT payments into the business accounts and reclaim it - just putting personal use petrol/diesel bills alone through the business VAT would net you hundreds of pounds a year.

It's only ordinary mortals that don't own businesses or do VAT returns that actually end up paying it. And there are other tax breaks that us ordinary mortals can never use - e.g. capital gains tax allowances, large pension contribution tax refunds, etc, with a little effort it is possible to offset quite a large proportion of tax liabilities as a higher earner.

Once you begin to lift the lid on the whole murky world of tax avoidance/fiddling you can see why people who you would expect to be ideologically against VAT as a "blanket tax on sales" are in practice keen to raise revenue in this way because it gives them huge scope to simply avoid paying most of it at all.

Not something taken into account by any of the government statisticians or political commentators....

Running a small business that is split 50/50 between wet and dry ie beer and wine/food leaves me with a vat disparity at the end of every quarter. I can not claim back the vat on the food I purchased but have to pay for its sale. I purchase everything very locally, employ local people, run apprenticeship schemes yet the vat hike takes none of that into consideration.
I am not a greedy person at all however I feel reassessing the vat structure and raising the personal tax threshold to the mentioned 10k would be a major help to small business.
The vat level set at 15% was a small help in tough times...

One observation, and one question:

Observation:
- Much more effective would be a fine-grained VAT per detailed product-category system. Some foods would receive less VAT than others. Some luxuries would receive more VAT than other products. Etc. This system should also include V.A. Subsidies to add the carrot side of the carrot and stick equation.

Question:
- WHY, please tell me, WHY, don't these so called governments actually do anything innovative like the above observation? Are these people just juggling the same old numbers, trapped in a cautious, reticent paralysis of status-quo conservatism, or is the current system so perfect?

This comment was removed because the moderators found it broke the house rules. Explain.

63. At 11:26pm on 04 Jan 2011, Crookwood wrote:
Just another point: if you are VAT registered, you should be able to reclaim all input VAT. So a charity which has costs, but no sales should be able to reclaim all the VAT from it's costs.
Ditto banks unfortunately.
Small micro (non VAT registered less than 80K turnover) businesses will be VAT victims, as their costs will go up, but they can't reclaim the VAT element.
So as far as I can see, most charitys and all financial institutions will not be effected.
=================
I doubt that a charity would be able to register for VAT if it had no sales. In fact you will find that charities which do sell stuff, and many do, do so through a separate limited company. Whether charities should be able to reclaim VAT is a different question.
Financial institutions definitely cannot reclaim VAT as they are exempt rather than zero rated, so will not be registered.

Complain about this comment

"72. At 02:26am on 05 Jan 2011, Hacky The Hufrex wrote:
I'm very disappointed with this blog of late. It would be nice to have heard something of the economics of taxation. Maybe the whole subject is considered too political so bland is the order of the day."

The economics of taxation?It is of course political,a mixture of politics,economics and morality hard to condense in a paragraph.It raises questions of distributive justice.who gets what,how much and when.There are also economic issues,-the effect of tax policies on the equilibrium,growth or decline of the economy.
The economic levers of change,-consumption and investment, are also influenced by the taxation of companies and individuals.

Class interest is relevant to distributive justice and its politics. Class relationships produce the tensions and conflicts which are institutionalized in trade unions,employers organization and political parties."Dialectic" is the metaphysical ancestor of these institutional groups and processes.

Orthodox marxism, which you refer to, is out of date.Its continuing relevance lies in the interdependence of technology,economic organization,social structure,politics and culture.The economics of taxation fits into this model,it`s about class,distributive justice,politics, economic equilibrium and growth.

49. At 9:01pm on 04 Jan 2011, Paul wrote:
10. At 4:37pm on 04 Jan 2011, nautonier wrote:
But the VAT increase is inflationary"
*All* tax increases are inflationary.
Income tax (a 'progressive' tax) increases lead to increased wage demands, which lead to increased labour costs, which lead to higher prices, which lead to inflation.
.......................
Paul
Right mouse click word checker now on here (might be in the browser as BBC saying nothing) ... or is that just on my PC?
Generally your point has merit ... but higher taxes are needed to deal with the New Labour financial legacy.
But not all taxes are inflationary ... depending on how inflation is measured (and inflation is measured slightly differently from country to country) ... that is the point I have been making for several months..
If the Chancellor reviews all VAT rate and exemptions and reliefs in the March budget alongside all UK indirect taxes/taxation ... more VAT exemptions and reliefs can be given where needed to incentivise the British domestic economy and stimulate UK regional aggregate demand and investment. The shortfall in VAT revenues can be made up and exceeded by reviewing UK import and export tariffs and by increasing tariffs on imported finished goods and foodstuffs which we should be making (adding significant process value) or growing ourselves.
Not all UK taxes are inflationary ... if the tax proceeds in the area stimulated by e.g. import/export tariffs exceeds the effect of e.g. those import/export tariffs.
If the import of certain high value foreign cars attract say 40% VAT rate which effectively is an import tax ... this would stimulate supply of British made high value British cars which creates/stimulates local investment, employment, jobs, all kinds of tax revenues and higher 'true GDP'.
Sorry to be a pain ... but the issue on indirect taxes is not still not understood by UK govt/politicians ... selective and careful tax planning in terms of better use of import/export tariffs can:
1) increase tax revenue
2) keep inflation lower or even cause it to fall
3) keep UK interest rates stable
4) keep the UK currency stable
5) re balance the UK economy
6) create new jobs for British workers
7) stimulate UK 'true GDP' and aggregate demand
The Chancellor can, in the March budget, make his name here and secure a better future for Britain or become the most unpopular Chancellor since ... Gordon Brown. He must take some of the sting out of the VAT increase and use radical indirect taxation for re balancing the UK economy or the economy will falter again.
I don't expect that George Osborne will read anything on here ... but (even though some think that the UK economic outlook is improving), if he as Chancellor ignores 'the advice' ... I think his career as Chancellor will soon be over as, inevitably, the arrival strong interest rate rises will plunge Britain into a deeper, underlying 'true GDP' recession.
The current UK tax policy is very crude and needs a coherent UK process value adding strategy and this means appointing a team of 'experts' ( I don't like the term but everyone uses it) to examine every single UK tax and get the detail right in the next budget in terms of stimulating the areas of the UK economy where Britain needs to go as there being insufficient margins to stimulate bank lending there, for investment.
Cheers

@75
"This means that every business owner can reclaim most if not all of the VAT they pay and they simply sneak in their personal VAT payments into the business accounts and reclaim it - just putting personal use petrol/diesel bills alone through the business VAT would net you hundreds of pounds a year."

Do you really believe that!? Have you any idea how strict the VAT laws are and what the penalties for doing that would be?! Please replace your tinfoil hat and return to your bunker.

Progressive. Regressive. Fair.

Just words really, and ill defined ones at that. Part of the thought processes use to device massively complex and expensive to run tax codes and benefit schemes.

#71. Stratosphere wrote:

"2) That VAT was introduced to appease Europe."

You are deliberately ignoring VAT's predecessor "Purchase Tax". PT was hugely complex and VAT essentially simpler, but its administration was more widely spread as it has to be calculated by every person in trade from manufacturer through to retailer. PT was a one hit wonder (along with various stamp duties and excise duties that were partially replaced by VAT).

The USA's system of a complex system of sales taxes is hugely complex and still relies on each State having separate rules.

VAT is simpler. So please praise the EU for forcing sanity on the UK with VAT and do not try to slag it off for doing something that makes life simpler and enables the single market function far more smoothly - and while we are about it - the single market is essential and critical to the the well being of the EU and every state in the EU - that is why obstacles to its full fair implementation must be removed - such as the remaining excise duties that distort trade and give rise to economically insane and damaging activities such as cross border personal travel for trade - such as booze cruises.

VAT increases? Pah!

Last week bread in my local baker's (no VAT) increased in price by about 7% making a total increase for the last year of 15%.

Diesel costs have on average increased by about 15% too.

My off peak single tube fare using Oyster increased by 12.5%

VAT is a distraction.

58. At 11:08pm on 04 Jan 2011, John_from_Hendon wrote:

Sorry Sir, but sometimes you live in a world far remote from mine!

“….and the poor type one…”

What a load of baloney – You need to define POOR!

Is it

1. 30K/an: good food and a 52 plate car. Or
2. 30K/an: poor food and a 58 plate car. Or
3. 20K/an: ave Food and a W plate car. Or
4. 20K/an: Vpoor food and a 54 plate car

Yes it is personal choice but define poor and define what constitutes luxuries? My 26 year old sees a mini computer/phone as a necessity not a luxury, where I have a £18 job by choice and only then because I was made to. But there again I have a landline and he hasn’t.

When you have defined both then ask yourself who is poor?

#11 Bob's fairy tale... What you're forgetting is that the 10th man only became so rich by exploiting the other 9 and pocketing the profit resulting from their labour. If he is not willing to take only his fair share and ensure the other 9 receive a fair wage based on their efforts then some of that money must be recovered by the tax system. If he chooses neither to pay his taxes nor ensure fair wages for the majority then this story demonstrates the painful consequences.

Progressive seems to be the fashionable word.

It smacks of hypocracy to me for elected politicians of any stance to witter on about progressive taxation or anything else for that matter when they are able to jointly set their own levels of remuneration and further dip into the public purse for many of 'life's little luxuries'.

I'd guess it takes at least 100 people living on average income or less to pay for each ordinary MP's way of life. Its probably more like 200 if you include pensions. Its probably much more once you become a 'dignitary' of your party.

Is that fair or progressive, I wonder?

Who pays the VAT is a good question ... but the bigger question about VAT is what is its true effect on the British economy? I see that some of the usual culprits are going off at a tangent and are confusing all and sundry.
The only way that British workers (those earning low and middle income salaries or receiving benefits)... their standard of living and our UK domestic economy can be improved ... is by allowing them to have /providing them with more disposable income.
VAT achieves the direct opposite of this ... and VAT has held back our UK economy since 1973 when Heath introduced it as the govt of the day needed money as mopping up after Labour and VAT was a condition of UK membership of the EU (UK straight jacket).
For those who wish to see more British people employed in the UK, have more money, better living standards, lower inflation, 'growth', etc ... significantly reduce VAT or better still abolish it as it a tax after being taxed on income.
Then replace VAT with a better constructed tax ... tax the problems ... fraud, black economy, too many foodstuff and finished product currency devalued imports.
This leaves more British people with more of their own money in their own pockets .. lower inflation etc ... with less choice in the shops and showrooms but with more money to spend on British made goods.
VAT as a tax or economic issue is not as complicated as some would make it ... you decide which is best ... VAT or better targeted taxation that stimulates the British economy?
Personally, I think that VAT is totally unsuitable for a 'non-continental economy' like e.g. Japan, Iceland, Australia and indeed the UK.
'Simples' ... even for politicians and so called economic experts.

#37 PFC_Gaz wrote:
Helicopters, Plane and Boat sales = 0% (Seem distinctly like luxury items)


Actually, planes and helicopters are now standard rate for everyone except airlines Gaz. Changed on Jan 1st.

Gordon Brown did not give billions away to the banks in exchange for fresh air. He took a controlling share that the current Government should be selling now at true market value now that the banks are more stable.
Instead the current administration are slashing services, encouraging an atmosphere of fear for working people and raising taxes. They do this because that is what their politcal dogma demands. They'd do it regardless.
They have an extremely valuable asset in the form of a controlling interest in several Banks that they are choosing to hang onto for one reason only - it will be useful to flog off later to buy votes with as 2015 approaches.

"As a share of expenditure, the Deloitte figures show the poorest losing 0.8%, the middle losing 0.96%, and the richest just over 1%. In that sense, these figures back up the point made by the government, that the VAT rise is not regressive if you look at the impact on households, relative to their expenditure."

The article fails to metion the increase in the personal tax allowance which for basic rate tax payers equates to £200 per annum

Come on BBC if you present statistics they must be placed in proper context. The reporting on the VAT increase has been alarmist and arguably biased against the current administration

And for all those who complain - what would you do to dig the country out of the hole the labour placed us in - a labour gioverment whcih included its current leader

43. At 7:58pm on 04 Jan 2011, bryhers wrote:
25. At 5:45pm on 04 Jan 2011, saucey1105 wrote:
"VAT has to increase, perhaps they could have put it up more gradually to 20%, but it needs doing, it is one of the fairest ways, it hits everyone the same, and those who buy less pay less. Labour are the ones guilty of rank hypocrisy, and the ones who have forced Mr Cameron to increase. Don't blame the Coalition, blame the Labour party, they have left us with the deficit"

Little Saucy,it doesn`t hit everone the same,the poor pay proportionately more of their income,the rich pay more absolutely because they have more money.

Did the labour party leave poor Mr.Cameron with the deficit?I had naively thought there was a banking collapse across the world, which governments in the USA,the EU and Japan had to rescue getting big debts in the process.Don`t we own some of them now? I wonder why that is?

Oh dear,I`ve got it wrong again.I should have known,it was that Mr.Brown who buzzed around the globe like a bee stinging bankers in an delicate place just as they were about to make us all rich. Oh dear,I never twigged.Back to the WI,the economics lecturer is really dishy,well,I am 43.

=============

I'll give you 1/10. For your information, our current debt is over £1trillion plus a further £3 trillion plus when state sector pension liabilities are factored in. Overall the bailout will add very little to this total (provided of course the government sells the shares back to the market at the right time. Some of the £1trillion debt has been created by the spending plans created by Labour to soften effect of the recession, however Labour was certainly guilty of not saving during the good times. In fact they spent during the good times and spent even more in the bad times.

The current budget measures are aimed at getting us into a position in 2015 where we stop adding to the debt. There will then be the small matter of paying the debt interest and attempting to pay the debt off or at least reduce it to a more manageable % of GDP.

People are perfectly entitled to place most of the blame for this mess on the Labour Party; I certainly will. The left may like to argue that it was the fault of the banks but whilst the banks aren't blameless we are also entitled to wonder what kind of regulation was in place between 1997 and 2007.

59. At 11:11pm on 04 Jan 2011, C Smith wrote:
Raising VAT will raise £12.1 billion per annum.
Tax avoidance through tax law loopholes costs £120 billion per annum.
The number of tax inspectors is to be decreased.
What planet is George Osborne on? Certainly not the one that most of us inhabit!


============
You sire are confused.

Tax avoidance is legal and is about taking advantage of the tax rules to minimise the amount of tax you pay.

I think you were trying to taslk about tax evasion which isn't legal.

"As a share of expenditure, the Deloitte figures show the poorest losing 0.8%, the middle losing 0.96%, and the richest just over 1%."

"The hit to the poorest 10th represents about 2.5% of their income, versus a roughly 1% hit for the those at the top."

How come income and expenditure do not match? Are you saying that the bottom group are falling deeper into debt while the top group are steadily incresing savings? Or is some aspect of income and/or expenditure being discounted from these figures?

Perhaps the question is:
Will an increase in taxation, whether by increasing v.a.t. or any other form of tax, produce a corresponding increase in revenue?

For example, with wages flat:
Average weekly earnings (not seasonally adjusted):
Jan 2009 Average weekly earnings = £444
Oct 2010 Average weekly earnings = £442 (provisional)
Increase = – 0.005%

And households increasing their indebtedness by less than 1.0% per annum.

And prices having risen by 8% in less than two years.
Retail price index (all items) RP02:
Jan 2009 210.1
Nov 2010 226.8
Price inflation = + 7.95%

Presumably people will simply spend less to accommodate the tax increase.

71. At 01:33am on 05 Jan 2011, Stratosphere wrote:
Points to remember in this discussion on VAT:

1) The original introduction of VAT was by a CONSERVATIVE Government!

2) That VAT was introduced to appease Europe.

3) If Cameron wanted to be "fair", he'd start by paying tax on his PM income like everyone else!!!

They are the Tories - what the hell did everyone expect?!?!

If they really wanted to make a difference, they'd close the Tax Avoidance loopholes. Second, they'd tax the bankers who created this mess and wave them goodbye as they leave.

Finally, we need INDUSTRY. The only reason Germany is getting out of this so well is because they MAKE THINGS and EXPORT THEM. What industry does the UK have that ISN'T foreign owned?

=========

I assume the above post is satirical.

Cameron reduced the PM's pay - more than Brown was willing to do.

If the banks leave we'll be waving goodbye to a large chunk of tax revenue.

The rise in VAT will put a twist into the inflationary numbers. This will then cause the Bank of England to raise interest rates around July.

After the combined effects of VAT and interest rate rises we will then see a significant decline in discretionary spending. A switch to cheaper brands and wider unrest.

The real issue is declining expenditure as household finances are stretched creating further unemployment. If the growth of the economy is jobless paticularly for the young we will face very desperate issues.

The more we see the more this is a one session parliament.

All this user's posts have been removed.Why?

Re: Poster # 89. nautonier wrote:

... is by allowing them to have /providing them with more disposable income.
VAT achieves the direct opposite of this ...

==============

Not quite. Income tax (and NI) determines your disposable income, VAT and other duties (fuel, cigarette, alcohol etc) reduce the spending power of your disposable income.

As for the rest of your post, your talk of:

'too many foodstuff and finished product currency devalued imports.
This leaves more British people with more of their own money in their own pockets .. lower inflation etc ... with less choice in the shops and showrooms but with more money to spend on British made goods.'

Well that's a really old-school protectionist-socialist viewpoint and one I've not heard since On The Buses ended!