While many critics of Michael “Oiky” Gove have focused exclusively on his past use of cocaine, some attention has at least been given to his proposal to abolish Value Added Tax, or VAT. Some are welcoming the idea. They should not. The idea is economically illiterate. And it shows that Gove’s supposed “business know-how”, er, isn’t.
As i News has reported, “Michael Gove has said he will replace VAT if he becomes Prime Minister. The Environment Secretary, who is running as leader of the Conservative Party, pledged to scrap VAT and bring in a ‘lower, simpler’ sales tax after Brexit … He claimed that Brexit would allow the UK to get rid of the 20 per cent goods and services tax and boost the economy”. Gove had this to say about his proposal.
“My economic plan is driven by the need to increase investment, productivity and wages across the country, with a special focus on helping those areas and regions where productivity is lower … It would mean reducing the regulations which hold business back, cutting and reforming taxes … using the opportunity of life outside the EU to look to replace VAT with a lower, simpler, sales tax”. Lower and simpler, eh?
There was, though, as Captain Blackadder might have observed, only one thing wrong with this idea - it was bollocks. The levying of VAT enables the Exchequer to bring in around £150 billion of revenue a year. VAT is an efficient and effective revenue raiser - which is why so many countries, most of them outside the EU, use this kind of tax. Gove’s schtick is to equate the EU with bad things, and say VAT equals EU, therefore bad.
The reality of Gove’s “lower, simpler” sales tax has been detailed by Richard Murphy on his Tax Research UK blog (post with more detail HERE). He identifies four major problems with Gove’s tax, the first being that it is less likely to be fair: “it will be more regressive: it will be paid in higher proportion by those on low income than high income”.
It gets worse. “Second, there is no guarantee of there being a tax reduction … Prices matching current VAT are likely. Reductions may well be few and far between. I am not saying there will be none: I am simply saying there will be big winners and losers”.
Worst of all are the potential effects on imports and exports. As Murphy points out, “Third, there is the massive bias in favour of imports to consider … This tax would then massively undermine UK business and favour imports … fourth, it would also bias against exporters … our exporters would not be able to compete because of Gove's sales tax”.
He concludes “As incompetence in tax design goes, suggesting a sales tax takes some beating. But Gove has done it, with a guarantee to destroy British jobs built into the idea”. Once again, the pretence of our journalist class that they have “business know-how” is trotted out, and once again is shown to be laughably deficient.
VAT is not going to be abolished. But Michael Gove’s credibility looks like it is.
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