VAT's life

Posted by:

18 May, 2010

Everyone you talk to in retail is now planning ahead for when VAT goes up, rather than if it does. Of course no retailer welcomes tax increases, but there is a level of resignation to it and certainly not the indignation which there was surrounding the proposed National Insurance rise.

The reason retailers are resigned to it is that everyone recognises that the government is going to have to take strong action to tackle the huge public sector deficit. When VAT went back up from 15% to 17.5% in January after the one year cut the previous government made to stimulate the economy, in truth it didn’t make much difference and sales have held up pretty well through early 2010. That’s not to say it won’t be without pain, but a small increase in VAT could be the least bad option for the new government.

If there is a rise there are things the government can do to mitigate the impact. Firstly, it would make more sense to increase the rate on those goods which are currently VAT-able and not extend it to other categories, notably food, which would have a severe impact on the poorest in society and have a big knock-on effect on their discretionary spend.

Secondly, time it sensibly. Don’t change the rate during peak Christmas trading, or on January 1st, as the previous government did. Give the industry warning that it’s hapenning and time to prepare themselves and their suppliers.

Thirdly, do it as part of a sensible package of measures and make sure the baby isn’t thrown out with the bathwater. A 2.5% rise in VAT won’t on its own kill consumer confidence, but George Osborne needs to be careful that his programme of austerity measures aren’t so severe that shoppers are scared stiff and stop spending completely.

Readers' comments (7)

john corcoran | 19-May-2010 9:39 am
Before any VAT increase the Government must immediately ban the notorious anti-tenant upward only rent review(UORR) retrospectively

Millions of jobs have been destroyed because of this outrageous lease clause. Britian is now alone in Europe in allowing this feudal barbaric lease clause
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Anonymous | 19-May-2010 10:24 am
Spoken like a true tory
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Tim Danaher | 19-May-2010 11:07 am
Think that's a bit unfair, been doing more than my fair share of Cameron-bashing on here over the past few weeks
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mark davies | 19-May-2010 11:49 am
When Darling reduced vat to 15% he said it was the tax which would help everyone and affect everyone, business and individuals, rather than changing tax and ni bands, therefore by the same arguement an increase in vat will ensure that everyone helps in the countries debt problem rather than just businessses or the top 5-10% of earners.

How a ban on upward only rent reviews would help this countires financial problem I really dont understand, and no relevance what so ever to the article Tim wrote!
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Anonymous | 25-May-2010 6:26 pm
Mark, don't worry - John finds a way of shoe-horning his anti-UORR arguments into every story on this website despite it being totally irrelevant in this case and despite retail rental values rarely falling and never falling by a sufficient amount to be the difference between retailers surviving and failing...
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john corcoran | 27-May-2010 9:49 am
Mark

If the oncoming recesssion is as severe as some commentators predict you will witness the devastation upward only rent reviews (UORR) will create

On the 25th May 2010 two Liberal Democrat MPs Bob Russell and Andrew George have tabled a motion in the House of Commons headed ``Empty Shops`` demanding the scrapping of the notorious UORR

I urge Mark and every retailer to lobby your local MP to ban this feudal anti-tenant lease clause urgently
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Anonymous | 27-May-2010 10:19 am
Stop criticising John-- how are we the only country in Europe who have to endure upward only rent reviews.?

Play the ball-not the man.
Hats off to you John---for highlighting this anamoly
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