Darling's VAT rate cut put a massive hole in the UK's public finances. VAT revenues during the last three months of 2008 were 12.5 percent below the same period in 2007. That is a shortfall of about ₤2.8 billion a quarter, adding up to ₤11.3 billion a year.
The government is about to run a deficit of 8.5 percent a year. This VAT cut added almost 1 percent of GDP to that deficit. As policy mistakes go, Darling's cut is proving to be very expensive.
14 comments:
If ever a move was designed to reduce tax take and go unnoticed by the public this takes some beating.I would bet most people have forgotten about it.
I won't knock Darling for reducing VAT. It is about the only move that is right ! It has to be matched by massive reduction in government amounting to decimation. The private sector has to be allowed to get savings going, since that is from whence an economy can be rebuilt. Unfortunately the government gives the appearance of not knowing what it is doing by adopting ridiculous Keynsian public spending which offests the private sector's efforts to rekindle savings. Occasional recessions have to be accepted. See Karl Denninger's Piece
http://market-ticker.denninger.net/archives/865-Reserve-Banking.html
The government seems to draft policy along the lines of:
When you've dug yourself into a hole, keep digging!
One would expect VAT returns to be less anyway during a recession. I wonder what the VAT statistics are for the last recession?
Soon get it back with a minimum cost of 50p per unit of alcohol.
Mike,
This VAT decline is mostly due to the cut. So far, the economy is only down about 1.5 percent.
Alice
I don@t know that the VAT decline is due to the cut at all Alice. The change happened on December 1st. Only a few businesses pay their VAT monthly, many ( like mines ) pay Quarterly. The Quarterly payment to the end of December ( and indeed the monthly payment) will have covered the period up to November 30th. So while there seems to be a huge drop in the tax take, it will most certainly not have been down to the tax rate cut. That impact will be in the first Quarter figure for 2009.
Anon 17:19
Fair point, perhaps I am putting too much weight on the VAT cut.
Alice
Actually Alice, there may have been some impact from the VAT cut on the tax take in Q4 2008, as some retailers were using it as a discount strategy before Dec 1st, and as it was widely trailed maybe a lot of purchases of bigger ticket items were postponed.
But I am more interested in the high 2Q 2009 number. What happened that caused a bigger tax take in that quarter?
sorry, 2Q 2008
2% is shite. Who ever thought that 2% would make a difference? It was a pure and simple bread and circus ploy.
Since VAT is a European tax, I think 15% goes to the EU, that is why the government could not slice more than 2.5 points from the 17.5% normally levied.
The government should simply stop collecting VAT. Then stop remitting the £10 bn per year they pay to the EU.
Or just zero rate the UK for VAT and stop remitting the £10 billion per year we pay to the EU.
I understand the EU collects about 1/2% of the VAT levied. The member states set their standard rates at 15 to 25 percent. The idea is to limit wide differentials in prices between states. But the tax is levied on top of the other excise duties which in our country means booze and fags are expensive.
The British net contribution was nowhere near £10 billion in 2007. UKIP reckoned about 4 billion. Tony and Baldrick fucked up the rebate since then, but I doubt even without that our contribution is £10 billion.
Alice - did you see Fraser's article on Brown/Darling and Darling actually trying to stop that fool for activating even more debt.
Is it Darling's cut, or Brown's?
Stinks like a brownie to me.
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