CoffeePhilE VAT forms a very substantial part of the source of our spending, and it is at least progressive to the extent that it’s zeo on many/most basic essentials (or low on domestic energy) and that where it does bite hard, that being so-called “uxury” goods, we can often avoid paying it by avoiding buying them.
The problem is it’s a regressive tax with a far higher Impact on the poor.
Lets take two people one earns £50K, the other earns minimum wage £23.8K. Both pay exactly the same rate of tax 20% and the allowances are the same., so we can treat these incomes directly for the example.
- both drive to work a similar distance for £100 of fuel per month or 1200 per annum
- both replace the same number of white goods, hoovers, TVs etc. per year at 1 every 10 years average cost 600 per annum
- both take the same family holidays with kids 4K per year
- both have the same motoring charges for servicing and vehicle replacement 3K per annum
- Clothes adults 600 per annum
- Cloths Kids 900 per annum (5% rated)
- Both spend £1700 per annum energy bills (5% rated)
If we take these basics… and consider no other spend which is frankly unrealistic, both families are incurring a minimum of VAT of around 2K per annum.
- the poor family spends almost 10% of their income on VAT
- the richer family spends only 4% of their income on VAT
If you actually consider all the other things people purchase and double that VAT amount it changes to 20% vs 8% on VAT
It hits the poorest hardest and the richer people are the less effect VAT has on them.