DavecUK The problem is that VAT is a very regressive tax, impacting the poor far more than the rich and stifles the economy..
I think VAT should be reduced to 10%. With our government learning the value of our money and working .ore efficiently.
Yes, it is …. sort-of.
Sorry for the delay in replying, by the way.
If VAT was a flat 20% on everything, I’d entirely ageee with it being regressive … and rather nastily so. But of course, it isn’t flat. THere’s quite a lot of stuff that is zero-rated, and other items that are exempt. The difference, IIRC, is in reporting. ots of stuff everybody buys (most non-luxury foodstuffs, kids clothing, books etc) are zero-rated, and some special services (like dental care) are exempt.
The idea, obviously, is that that mitigates the impact on the poorest, and so, reduces the regressive component.
Nonetheless, there’s a lot of stuff that people that aren’t exactly well off have to, or just want to, buy. Like, everything from a new TV to fuel for the car. And as soon as we start talking about those sorts of things, VAT hits hard on he relatively poor.
But therein lies the problem …. how do we define “poor”? Without wishing to generalise, I’ve certainly come across enough people that regard themselves as “poor”, yet have no trouble finding money for that new big TV, booze in the pub, or foreign holidays. Then there are those that really do struggle to feed the kids, or choose between eating and heating. .Etc.
The problem with cutting VAT to 10% is that it’s one of the single largest sources of government revenue, and if you really want to advocate taking billions out of the tax base in VAT, you really should explain where else you’re going to replace it, or what government expenditure/services are going to be cut.
The current government seem to think they can raise revenue in a less “regressive” way, by targetting the rich(er), such as tax on non-Doms, and a contemlated wealth tax. But whatever they plan to target, Labout usually seem to forget one factor - those that are wealthy are also those best eqipped, by FAR, to simply leave the country and the government end up getting zero tax revene from them, not more.
They made that mistake back in the 60s-early 70s, with cripplingly high rates of income and investment tax. IIRC the maximum rate of income tax was up at 83%, and on investment (unearned) income, there was a supertax evey of 15% on toop of that, meaning an effective marginal rate of 98%.
So the very people with the incentive, and resources, to invest in businesses were being told that if the do, they can take alll the risk, and get to keep 2% of any profits if it succeeds while the government get the other 98%. Yet if it fails, the investor gets to keep 100% of the losses. Only a moron would invest under those terms. It was highly “progressive”, though.
I’m obviously illustrating with extreme cases here, just to make a point, but there’s a core economic (and fiscal) principle at play here …. elasticity.
If you want a tax to actually be effective, in terms of raising money, it HAS to be on a product where consmer demasnd is pretty inelastic. i.e. demand for goods doesn’t change, or at least not much, if you raise prices, or taxes. And that, of course, is why governments always clobber alcohol, tobacco and petrol/diesel. Even if demand dips, it’s usually temporary and bounces right back.
But if you levy taxes on people that can avoid them, then many/most usually will. I knew more than a few back in the 60s/70s that left the country due to tax ‘persecution’ (the old “bleed them ’til the pips squeak” principle). And mostly, they never came back, so were a permanent loss to the Exchequer.
It’s all very well reducing VAT on the “poor” and hitting the “rich”, and might be morally desirable, but if the result is that the take revenue raised ends up dropping, it’s going to be a miserable failure. Not everything that might be desirable on principle is actually going to work, if put into effect.
It’s a sad but cynical fact that the “best” people to clobber with tax rises are those that can’t afford to avoid them by changig behaviour. And that means “working people”. It’s simple maths - the masses are the only ones you can raise significant extra tax from, because there are a lot of them. It doesn’t work well if you target the rich, because if you hit them hard enough to pay for something like cutting VAT to 10%, a significant proportion will react by leaving the UK tax jurisdction entirely. Then, the gvernment are out of pocket by both the lost VAT revenue, and the tax those “rich” were paying, beforee the left.
I’m not saying I like the above logic. Not one little bit. But in broad terms, that’s how it works, whether we like it or not - governments target those that WILL pay, by virtue of not having the resources to do anything else, not those they say they will target, if it won’t work when they do. i.e. they fib to the people, and say one thing but do another. Politicians being ‘economical with the truth’? Who’da thunk it? :D
