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Wednesday 23 June 2010

No Surprise There, Then

So VAT is to go up to 20%. The most predictable part of the first budget delivered by the Rt Hon Gideon George Oliver Osborne, Heir to the Seventeenth Baronet was that the Tories’ favourite tax target was to be hit for the third time.

As I predicted some weeks back, the new and improved two headed donkey has gone for a VAT increase: the only surprise is that there has been no tinkering with the reduced rate – yet. I still believe that this potentially lucrative step is on Osborne’s wish list, together with the ending of zero rating, although the latter may need the electorate and press to be softened up suitably beforehand.

I note that, at around the same time I made my prediction, the routinely clueless Paul Staines, who blogs under the alias of Guido Fawkes, predicted that VAT would not be increased because of its potential effect on inflation. As if Osborne is greatly fussed on that front – he can always dump on Merv the Swerve if things get difficult.

So, wrong again, Paul.

4 comments:

allegoricus said...

I'm not sure that eliminating the zero-rate would gain traction for two reasons: firstly because of its clear distinction from exemption (IOW with zero-rate, input tax can be reclaimed), and second, the prospect of the immediate hit of a 20% price increase in newspapers and books at the point of sale (a "death blow" ;-).
It would be hard to push that one past the news media generally - Murdoch certainly wouldn't approve - and it's possibly the one thing that would unite all newspaper publishers.
ISTR that the zero rate on newspapers and books was decided on to keep the press on-side, and to mollify the education lobby (enthusiastically encouraged, of course, by book publishers ;-), when VAT was originally introduced.
Worth also noting that even the BBC, ostensibly a broadcast media operation, has significant book publishing interests, so even they won't be neutral on the matter.

allegoricus said...

Forgot to add that children's clothes are also zero-rated, and pushing up the price of those could be easily spun as "anti-family". ;-)

Tim Fenton said...

Ending Zero Rating, though, would not mean putting everything in the top VAT bracket: a rate of 5% would be more likely (other EU countries have a lowest rate of 5 to 7 per cent).

The present lower rate would then be upped to around 10%. Give it another year or two.

allegoricus said...

Yeah, well, I have to admit the possibility, although if VAT has any virtue at all, it's simplicity.
In Purchase Tax days, few had a clue what rate of tax they were being charged, but businesses could at least exempt themselves from the inbound/outbound circus.