Where do you stand on cutting the VAT rate?

Where do you stand on cutting the VAT rate?

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In a statement released yesterday, the Federation of Small Businesses (FSB) demanded that Ed Balls stop playing politics with the economy and support entrepreneurs with a credible plan for growth.

Criticising the call from Labour shadow chancellor Ed Balls for a full reversal in the 20% VAT rate, the FSB said the UK should instead follow the lead of other EU countries and introduce a one-year VAT cut for small businesses in the construction and retail sectors only. 

By cutting VAT to 5%, as opposed to a £5bn cash injunction into "rushed infrastructure projects", the employers' organisation said growth would be kick started, jobs would be created and the Treasury would benefit from increased revenues.

Do you think Labour is right to push for a full reversal or do you support the FSB's call for a temporary, focused change, even though it would add another complication to firms' administrative burdens.

Replies (11)

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By frustratedwithhmrc
26th Sep 2011 16:15

Construction is First In, First Out of a recession for a reason

The traditional characteristics of any recession is that construction is the first to be hit by the downturn and the first to recover.

We've seen some improvement in construction, but not the fundamental shift that we would expect from a full recovery.

I understand the rationale behind the request for a short term very low VAT rate to get construction and renovation moving again, but we can't lead the economy by the nose.

Yes, we might get some form of upswing in the construction market, but I don't think even a 15% cut in VAT would generate more growth than it costs in revenues.

What we need is not short term tax measures, either positive or negative, but something which will fundamentally raise the confidence of businesses to stop sitting on their significant cash piles and start growing businesses and thereby the economy once again.

The only resolution to this is for the Eurozone to deal with its debt crisis without lumbering the powerhouse economies of the Eurozone with the full cost of dealing with the debt crisis.

What we need is not short term VAT relief, but a new Bretton Woods agreement whereby the major economies agree to a combination of haircuts, debt relief, euro expulsions and managed default for the worlds major economies.

This would share the pain (perhaps unequally), but it would allow the world to move on rather than being trapped in years, perhaps even decades of stagnation.

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By Owain_Glyndwr
26th Sep 2011 18:05

NO - as always Labour are looking for short term propoganda.

In a word - NO

Reducing VAT would have about the same effect as trying to bail out the Titanic with a tea spoon.

The first thing that should happen is to allow the Euro to die. The idea of different nations with different economies all having the same currency is plain daft and has been from the start. The only reason for the introduction of the euro was as a first step towards a european superstate with Germany & France in control.

Now of course we are being asked to contribute towards a multi trillion pound package to save the euro, and we should simply say NO.  Enough is enough and it's time the euro and the idea of a european superstate was put out of it's misery.

VAT itself does need overhauling - but in a way that benefits the British economy, with no imput or "regulations" from Brussels.

If any tax should be cut, it is the duty on fuel, because the cost of transport is crippling households, and, crippling industry by pushing up the cost of raw materials, pushing up the costs of production, and pushing up the cost of distribution.  Remember, VAT doesnt affect most businesses other than short term cash flow as they reclaim it, but fuel taxes come straight out of the profits of every business big or small.

 

 

 

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Locutus of Borg
By Locutus
26th Sep 2011 18:39

Tinkering with VAT is just a short term gimmick

If you cut the main rate of VAT on everything or on specific industries (such as retail or construction) all it does is encourage a little more demand within the period that VAT is cut, to the detriment of the periods shortly before / after the VAT cut.  I'm not convinced that when VAT was cut to 15% in 2008 that the minimal amount of extra growth it generated outweighed the lost amount of tax.

The reality is that the world, including Britain, had a debt fueled party up to 2008.  Now its pay back time for the next few years.  That's not good news for politicians, as saying "it's just going to be flat for the next 3 or 4 years" doesn't win many votes.  Politicians do not like feeling powerless, but ultimately you can't trick people into feeling confident by short term gimmicks.

All you can do is get the long term fundamentals right: balancing the national budget largely by reducing the public sector, reducing red tape and in time reducing the tax burden.

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By DMGbus
26th Sep 2011 18:53

Every tax cut needs a tax rise

So, lets look at alcohol retailing...

EXAMPLE ONE Alcohol sold and consumed in a controlled environment (as in pubs, clubs, restaurants) is liable to 20% VAT.

EXAMPLE TWO  Alcohol sold in a less controlled environment (ie. buy from  a supermarket and taken away and then drunk in the street quite often) is liable to VAT at 20%

It is my understanding that a Social Rate of VAT (for example 5%) is lawful and could be applied to EXAMPLE ONE.  This could be covered by a VAT rate increase on Alcohol sold from supermarkets above a certain square footage where society is being damaged as a consequence in two ways - decline in the pub industry and in my personal opinion causing brewers to charge higher prices to pubs so that the brewers can then afford by cross-subsidy to charge lower prices to supermarkets - a market distortion.

 

Turning to taxation in general populist tax cuts will seemingly be vote-winners often winning votes from people who don't understand the concept that one person's tax cut is another person's tax rise.   OK, "let's put an extra tax on the banks" is a vote winner.  But, the power of the banks is such that my guess is that they would simply relocate to another EU country that would like the thousands of jobs exported from the UK.  Not a desirable outcome.  

 

 

 

 

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By thisistibi
26th Sep 2011 18:58

But

The temporary reduction of VAT from 17.5% to 15% did absolutely nothing.  How is this any different?  

Anyway, I think if we do the precise opposite of what Labour suggest then I think everyone will be fine.

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By Owain_Glyndwr
26th Sep 2011 22:20

-

thisistibi

Anyway, I think if we do the precise opposite of what Labour suggest then I think everyone will be fine" 

 

 

That sounds about right - I mean, would you take advice from a firm of accountants called Brown Balls Darling & Co ?

 

 

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By User deleted
27th Sep 2011 08:03

Typos

EDIT: text removed due to correction of typo in previous post

But in answer to the question, I wouldn't trust them any less than I would Weasel, Clegbite & Co

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By ShirleyM
27th Sep 2011 06:43

Between the devil & the deep blue sea

Not much to choose between any of them, and a lot of trust has been lost in recent years. I am not singling out any one party as being any better, or worse, than the others..

We are being dragged deeper and deeper into the EU, so we won't even need a government soon. Not as we know it now, anyway.

The cost of government by the various bodies in the UK, and the EU, is probably astronomical. Maybe cutting this would give us greater benefits than a VAT cut?

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By Steve Holloway
27th Sep 2011 08:45

EU debt crisis is bad in the short-term ...

but like the black Monday crisis of the early 90's it is at least another nail in the coffin of the homogenised European vision of Brussels. It seems that either they have to give up closer union for good or go for 100% political and economic control from the centre. The latter will not be acceptable to the UK voters and for all his faults I believe Cameron is the the most Euro sceptic PM since Maggie.

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Replying to Flying Scotsman:
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By Discountants
27th Sep 2011 12:42

I must admit I strongly support the european project

For all it's faults I believe that the european project of pooling sovereignty is probably one of the most important political objectives humanity has at the moment.

Especially after reading Paul Seabright's excellent book 'The company of strangers' and my interest in history.

I think that it is the only credible attempt to combine the excellent system of the nation state with the rule of law - by the middle of the 20th Century the consequences of having nation states with no attempt at rule of law between them were too high to bear.

I do not believe that a 'european superstate' is what the EU is going to evolve into indeed I would count it a failure if it became as integrated as the US is now as it was before it's civil war is probably what I would aim for.

I think we in the UK fail to realise that we live in one of the most centralised states in the western world and so naturally we fear power and accountability moving further from the grasp of the common people. This is, however, more of a problem with our system of 'whitehall decides everything' than with the EU as such (could you imagine any body in this country holding the leaders to ransom over EU deals like Germany's constitutional court can?)

The nation state enabled the rule of law to be applied within it's boundary but at the expense of anarchy reigning between states - I beleive that this is one of the crucial things that led to the industrual revoultion and the escape from poverty that has happened in the west over the last quarter-millenium.

I fear for a future where we have failed to learn how to apply the rule of law between states.

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By listerramjet
27th Sep 2011 12:57

leave it alone

BUT scrap all those other purchase duties, like fuel tax, stamp duty, booze...

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