UK VAT rate to be raised to 20% in Jan 2011

Seen something interesting in the news or on the intertubes? Discuss it here.

Moderators: Zamfir, Hawknc, Moderators General, Prelates

User avatar
the_bandersnatch
Actually not so frumious.
Posts: 939
Joined: Wed Jan 09, 2008 11:46 am UTC
Location: on a bed in a room inside a TV in a hotel room in a hotel on a Monopoly board

UK VAT rate to be raised to 20% in Jan 2011

Postby the_bandersnatch » Tue Jun 22, 2010 2:17 pm UTC

Source: http://news.bbc.co.uk/2/hi/politics/10371590.stm

Budget: Osborne's 'tough' package puts VAT up to 20%

Osborne: "The years of debt and spending made this unavoidable"

VAT is to rise from 17.5% to 20% in January after George Osborne unveiled the biggest package of tax increases and spending cuts in a generation.
He said his "tough but fair" Budget was "unavoidable" although he told MPs in the Commons there would be no extra tax on alcohol, tobacco and fuel.
Child benefit will be frozen for three years, public sector pay frozen and 25% cut from government department budgets.

Labour said the Budget was "reckless" and would "throw people out of work".
Acting Labour leader Harriet Harman said it would stifle growth and hit hardest "those who can least afford it".
But Mr Osborne laid the blame for the state of the nation's finances squarely at the door of the previous Labour government, saying: "The years of debt and spending make this unavoidable."

(more on the BBC News site)

... and this is precisely why I didn't want the Conservatives in. Fuckity fucksticks.
In girum imus nocte, et consumimur igni

User avatar
olubunmi
Posts: 250
Joined: Fri Dec 18, 2009 7:17 pm UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby olubunmi » Tue Jun 22, 2010 2:37 pm UTC

A VAT rate of 20% seems to be pretty average in Europe.

As for the other changes - I don't know enough about the situation in the UK to know whether these changes are actually necessary or not, or whether there was a possible alternative.

The Reaper
Posts: 4008
Joined: Fri Oct 12, 2007 5:37 am UTC
Location: San Antonio, Tx
Contact:

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby The Reaper » Tue Jun 22, 2010 2:40 pm UTC

You didn't want conservatives because they'd actually make you PAY for your social programs? O_o

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Indon » Tue Jun 22, 2010 2:43 pm UTC

Eew, VAT. Why not use sales taxes, if you want to target consumption?
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

User avatar
SlyReaper
inflatable
Posts: 8015
Joined: Mon Dec 31, 2007 11:09 pm UTC
Location: Bristol, Old Blighty

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby SlyReaper » Tue Jun 22, 2010 2:55 pm UTC

the_bandersnatch wrote:... and this is precisely why I didn't want the Conservatives in. Fuckity fucksticks.


What, you'd rather we still had Labour digging us even deeper into this hole, making it even more painful later on? A rise of VAT to 20% means things will be about 2% more expensive than they were before. Not ideal, but not the end of the world either.

That said, who wants to place odds on the VAT rate going back down again when we've cleared the previous government's debt?
Image
What would Baron Harkonnen do?

User avatar
Phen
Posts: 1184
Joined: Wed Jan 16, 2008 8:50 pm UTC
Location: Copenhagen, Denmark

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Phen » Tue Jun 22, 2010 3:04 pm UTC

Pff. We have a vat of 25%, cry me a river. :P
I'm a wizard. We know these things.

In war, one should seek to take and hold the high ground. From there, the enemy's movements are clearly visible, and he will struggle just to reach you, let alone fight you. High orbit is the highest ground there is.

casiguapa
Posts: 416
Joined: Tue Feb 17, 2009 12:49 am UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby casiguapa » Tue Jun 22, 2010 3:06 pm UTC

you forgot to mention the freeze or slash in every form of child benefit, housing benefit, the new rules for DLA and the cut in corporation tax. Oh, and the fact that CGT is only going up to 28% not the 40% it should have.

In fact, with only £1000 being increased in Personal Allowance instead of the £3500, is there ANYTHING the Lib Dems fought for or did they just bend over and let the Tories shaft them?

As for the current rate of VAT, VAT used to be 8% and 12% till the Tories raised it to 15% in 1979 and raised it further still in 1991 to the current rate. Labour may have kept the rate at 17.5% but the Tories are the only ones to have ever increased VAT.

So only an idiot will place odds on it going back down should this coalition remain, they always planned to put it up and they will most likely keep it up. How do we know this? The fact that the figures and indeed the so-called experts said that VAT rise was unnecessary.

This budget may as well have the slogan "Tough on Children, Tough on the Causes of Children".
<SugarTits> What's a penis?
<Casiguapa> Heisenberg

User avatar
SlyReaper
inflatable
Posts: 8015
Joined: Mon Dec 31, 2007 11:09 pm UTC
Location: Bristol, Old Blighty

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby SlyReaper » Tue Jun 22, 2010 3:23 pm UTC

From the purely selfish perspective of someone who doesn't have any children, I can live with that. As for capital gains tax, I'm bloody glad it didn't go up as much as expected. It shouldn't even be a thing as far as I'm concerned.

Cutting corporation tax is simply good business - allow businesses to keep more of their profit and they can more easily expand and end up paying more tax in the future. Not to mention encouraging new businesses to start up.
Image
What would Baron Harkonnen do?

casiguapa
Posts: 416
Joined: Tue Feb 17, 2009 12:49 am UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby casiguapa » Tue Jun 22, 2010 3:48 pm UTC

SlyReaper wrote:From the purely selfish perspective of someone who doesn't have any children, I can live with that. As for capital gains tax, I'm bloody glad it didn't go up as much as expected. It shouldn't even be a thing as far as I'm concerned.

Cutting corporation tax is simply good business - allow businesses to keep more of their profit and they can more easily expand and end up paying more tax in the future. Not to mention encouraging new businesses to start up.


Well as long as you can live with it. *eyeroll*

Cutting corporation tax whilst taking more away from the poor isn't good business, it's vileness. VAT increases whilst giving some relief to businesses is nothing but an ideological driven attack on the working class. Nothing more, nothing less.
<SugarTits> What's a penis?
<Casiguapa> Heisenberg

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Vaniver » Tue Jun 22, 2010 6:04 pm UTC

casiguapa wrote:Cutting corporation tax whilst taking more away from the poor isn't good business, it's vileness. VAT increases whilst giving some relief to businesses is nothing but an ideological driven attack on the working class. Nothing more, nothing less.
Clearly, the working class are the only people deserving of consideration, respect, or good treatment!

More seriously, Britain has debt problems that need to dealt with. A cut in spending and/or a rise in taxes are inevitable; the only question is when and how much. A shift of taxation from capital accumulation to production, while not as good as a shift from capital accumulation to consumption (like Indon points out), is still good at driving economic growth, which will make the debt problem easier to solve.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7588
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Zamfir » Tue Jun 22, 2010 6:19 pm UTC

Vaniver wrote:
casiguapa wrote:Cutting corporation tax whilst taking more away from the poor isn't good business, it's vileness. VAT increases whilst giving some relief to businesses is nothing but an ideological driven attack on the working class. Nothing more, nothing less.
Clearly, the working class are the only people deserving of consideration, respect, or good treatment!

More seriously, Britain has debt problems that need to dealt with. A cut in spending and/or a rise in taxes are inevitable; the only question is when and how much. A shift of taxation from capital accumulation to production, while not as good as a shift from capital accumulation to consumption (like Indon points out), is still good at driving economic growth, which will make the debt problem easier to solve.


In this particular case, there is something nasty. Britain has debts problems because it had to give an awfully large amount of money to rescue the London City, basically the richest people in the country. Using a regressive tax to pay for that is basically an admittance that the UK is so dependent on its bankers that they can extort the rest of the people.

User avatar
ian
Posts: 706
Joined: Fri Mar 07, 2008 3:55 pm UTC
Location: Sealand

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby ian » Tue Jun 22, 2010 6:24 pm UTC

Pretty sure the amount of debt that went to the City is a relatively small portion. Just like America

Think it's ridiculous they are raising VAT to 20%, does anyone know how much this is likely to raise in tax?

olubunmi wrote:A VAT rate of 20% seems to be pretty average in Europe.

True, but that's meaningless without also comparing income and other taxes too.

Heisenberg
Posts: 3789
Joined: Wed May 14, 2008 8:48 pm UTC
Location: Uncertain

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Heisenberg » Tue Jun 22, 2010 6:30 pm UTC

Zamfir wrote:Using a regressive tax to pay for that is basically an admittance that the UK is so dependent on its bankers that they can extort the rest of the people.

The BBC reported that this package included a tax hike on the banks. One that was in parallel with some other EU countries.

For a distasteful bill, it was remarkable well presented. Labour's response fell flat when viewed on a backdrop of the Greek riots. I think they'd be better served with a different solution, but then they'd be questioned as to why they hadn't implemented that fix last year.

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7588
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Zamfir » Tue Jun 22, 2010 6:41 pm UTC

Heisenberg wrote:
Zamfir wrote:Using a regressive tax to pay for that is basically an admittance that the UK is so dependent on its bankers that they can extort the rest of the people.

The BBC reported that this package included a tax hike on the banks. One that was in parallel with some other EU countries.

For a distasteful bill, it was remarkable well presented. Labour's response fell flat when viewed on a backdrop of the Greek riots. I think they'd be better served with a different solution, but then they'd be questioned as to why they hadn't implemented that fix last year.


Sure, by now it's inevitable. Just as the bailouts really were inevitable by the time they were done. But that doesn't mean they were always inevitable, just that the actions to avoid them should have taken earlier, when stimulating the financial sector was still en vogue.

In that respect, it's important that people keep remembering that they are not paying for some abstract "debt reduction", but for very specific actions on behalf of the financial sector. So that the next time that times are booming, and the sector comes asking for privileges, people will remember the price they paid this time.

Heisenberg
Posts: 3789
Joined: Wed May 14, 2008 8:48 pm UTC
Location: Uncertain

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Heisenberg » Tue Jun 22, 2010 6:51 pm UTC

Zamfir wrote:In that respect, it's important that people keep remembering that they are not paying for some abstract "debt reduction", but for very specific actions on behalf of the financial sector. So that the next time that times are booming, and the sector comes asking for privileges, people will remember the price they paid this time.

I totally agree. Although it's important to remember that the financial sector weren't the only ones who profited from the boom. Now, they probably profited the most and will be hurt the least, but it's safe to say that the Greek taxi drivers in Mercedes are definitely beneficiaries of the recent financial roller-coaster.

ianf
Posts: 165
Joined: Fri Jun 19, 2009 9:43 pm UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby ianf » Tue Jun 22, 2010 7:18 pm UTC

Indon wrote:Eew, VAT. Why not use sales taxes, if you want to target consumption?


VAT is a sales tax - just called something different.
ian wrote:
olubunmi wrote:A VAT rate of 20% seems to be pretty average in Europe.

True, but that's meaningless without also comparing income and other taxes too.


Also, what you get for your taxes. Whether there is a good social care or medical provision, for example.
SlyReaper wrote: A rise of VAT to 20% means things will be about 2% more expensive than they were before. Not ideal, but not the end of the world either.


Except that it's a regressive tax. It would have been fairer to increase income tax, for example.

Heisenberg
Posts: 3789
Joined: Wed May 14, 2008 8:48 pm UTC
Location: Uncertain

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Heisenberg » Tue Jun 22, 2010 7:39 pm UTC

ianf wrote:VAT is a sales tax - just called something different.

They're similar, but a VAT is different.
ianf wrote:Except that it's a regressive tax. It would have been fairer to increase income tax, for example.

It's not regressive. It's just not as progressive as you'd like it to be.

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Vaniver » Tue Jun 22, 2010 7:55 pm UTC

Zamfir wrote:In this particular case, there is something nasty. Britain has debts problems because it had to give an awfully large amount of money to rescue the London City, basically the richest people in the country. Using a regressive tax to pay for that is basically an admittance that the UK is so dependent on its bankers that they can extort the rest of the people.
I agree that bailing out bankers is nasty- but that's hardly the beginning or cause of Britain's debt problems. It may be the cause of those problems moving past some actionable threshold, but that's different.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

User avatar
ian
Posts: 706
Joined: Fri Mar 07, 2008 3:55 pm UTC
Location: Sealand

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby ian » Tue Jun 22, 2010 8:11 pm UTC

Heisenberg wrote:
ianf wrote:They're similar, but a VAT is different..

VAT is a type of sales tax, not a different thing.


It's not regressive. It's just not as progressive as you'd like it to be.

poor people spend a higher percentage of their earnings on things that have VAT, than richer people, hence it is regressive.

casiguapa
Posts: 416
Joined: Tue Feb 17, 2009 12:49 am UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby casiguapa » Tue Jun 22, 2010 10:14 pm UTC

those on a lower income spend 12% of it on VAT, those on a higher income spend on average 4%. How is this progressive?
How is it progressive to freeze child benefit which in real terms will actually be a reduction? How is it progressive to make those who are disabled have to re-apply for the meagre benefits they receive and have that decision be at the mercy of a doctor who's prognosis may differ from a different GP?

The bank levy may well be on par with other European countries but it's only bringing in £2bn compared to the £13bn that VAT will be bringing in. How is that fair that the richest are paying less than those on low and modest incomes?

The 25% cut in departmental spending = job cuts. Those job cuts will equal more people unemployed. 100,000 MORE people unemployed every year as a result of this. 100,000 people who will no longer be paying tax but instead claiming benefits and relying on the state.

With the growth figures revised down and banks still not lending, how is such a hit on the public sector going to be made up by a stagnant private sector? The coalition may think that the private sector will pick up the slack but there is no evidence that this will be the case. Most private companies have had recruitment freezes for nearly 3 years now. Where are these new private sector jobs going to come from?

Welfare reform that does nothing to address the fact that so many people are claiming Housing Benefit as a result of a lack of low priced and social housing available and BTL landlords charging extortionate prices to rent in places like London.

In short, this budget will hit poorer areas harder than affluent ones. Merseyside will be the worst hit.

Personal expense increase in Newcastle = 15%

Personal expense increase in Cameron's constituency of Whitby = 1.8%

"We're all in this together" Like fuck we are.
<SugarTits> What's a penis?
<Casiguapa> Heisenberg

User avatar
bigglesworth
I feel like Biggles should have a title
Posts: 7461
Joined: Sat Apr 07, 2007 9:29 pm UTC
Location: Airstrip One

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby bigglesworth » Tue Jun 22, 2010 10:20 pm UTC

SlyReaper wrote:What, you'd rather we still had Labour digging us even deeper into this hole, making it even more painful later on?
They're cutting free meals for some kids. That's swapping a small price now for a much larger price for the NHS later. Everything that hurts the working class now will need to be paid for later, in social costs (more people living rough on the streets) or NHS costs, or just in economic costs of a weaker consumer base.
Generation Y. I don't remember the First Gulf War, but do remember floppy disks.

User avatar
mmmcannibalism
Posts: 2150
Joined: Tue Jun 30, 2009 6:16 am UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby mmmcannibalism » Tue Jun 22, 2010 10:42 pm UTC

bigglesworth wrote:
SlyReaper wrote:What, you'd rather we still had Labour digging us even deeper into this hole, making it even more painful later on?
They're cutting free meals for some kids. That's swapping a small price now for a much larger price for the NHS later. Everything that hurts the working class now will need to be paid for later, in social costs (more people living rough on the streets) or NHS costs, or just in economic costs of a weaker consumer base.


So your solution is?

Pretty simple math that dealing with debt requires either more taxing or less spending.
Izawwlgood wrote:I for one would happily live on an island as a fuzzy seal-human.

Oregonaut wrote:Damn fetuses and their terroist plots.

User avatar
bigglesworth
I feel like Biggles should have a title
Posts: 7461
Joined: Sat Apr 07, 2007 9:29 pm UTC
Location: Airstrip One

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby bigglesworth » Tue Jun 22, 2010 10:53 pm UTC

Tax more on the people who can most easily bear the burden, the upper middle and upper classes, and spend less on them.
Generation Y. I don't remember the First Gulf War, but do remember floppy disks.

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Vaniver » Tue Jun 22, 2010 11:18 pm UTC

casiguapa wrote:The bank levy may well be on par with other European countries but it's only bringing in £2bn compared to the £13bn that VAT will be bringing in. How is that fair that the richest are paying less than those on low and modest incomes?
Do bankers represent less than 13% of the population / economy / whatever metric you want to use? If so, their percentage of that £15bn increase is disproportionately high. Now, that seems like that should be the case that it should be disproportionately high- but that makes it sound fair.

casiguapa wrote:The coalition may think that the private sector will pick up the slack but there is no evidence that this will be the case. Most private companies have had recruitment freezes for nearly 3 years now. Where are these new private sector jobs going to come from?
Where any new private sector jobs come from? The private sector can rebound from crashes without government help. If the private sector was running too hot on the fuel of government debt or heady expectations, then it's obviously going to be running cooler until actual growth catches up.

casiguapa wrote:The 25% cut in departmental spending = job cuts. Those job cuts will equal more people unemployed. 100,000 MORE people unemployed every year as a result of this. 100,000 people who will no longer be paying tax but instead claiming benefits and relying on the state.
If someone's post-tax income is lower than unemployment benefits, that's a problem. If not, this is still a cost-cutting measure (though with a multiplier of less than one).

bigglesworth wrote:Tax more on the people who can most easily bear the burden, the upper middle and upper classes, and spend less on them.
That's not a good recipe for economic growth, or keeping them in Britain.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

User avatar
bigglesworth
I feel like Biggles should have a title
Posts: 7461
Joined: Sat Apr 07, 2007 9:29 pm UTC
Location: Airstrip One

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby bigglesworth » Tue Jun 22, 2010 11:43 pm UTC

Where are they going to go instead? What's keeping them from going to lower tax states right now? Those same things keeping them here now will keep the vast majority here under a more fair tax system.
Generation Y. I don't remember the First Gulf War, but do remember floppy disks.

User avatar
mmmcannibalism
Posts: 2150
Joined: Tue Jun 30, 2009 6:16 am UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby mmmcannibalism » Wed Jun 23, 2010 12:16 am UTC

bigglesworth wrote:Where are they going to go instead? What's keeping them from going to lower tax states right now? Those same things keeping them here now will keep the vast majority here under a more fair tax system.


Most wealthy people are willing to pay a progressive tax because they see having to relocate as more troublesome then a progressive tax. The proportion of people who will still see it that way decreases as the tax rate increases.

Think of it as moving for a job. Would it be worth moving for a job that pays five thousand dollars/pounds per year? what about ten thousand? twenty thousand? Almost noone would move to make one extra dollar per year; but almost everyone would move to make an extra hundred thousand dollars per year. A raise in the tax rate makes relocation look like a better prospect.
Izawwlgood wrote:I for one would happily live on an island as a fuzzy seal-human.

Oregonaut wrote:Damn fetuses and their terroist plots.

Rysto
Posts: 1460
Joined: Wed Mar 21, 2007 4:07 am UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Rysto » Wed Jun 23, 2010 12:30 am UTC

Indon wrote:Eew, VAT. Why not use sales taxes, if you want to target consumption?

Because sales taxes hit domestic manufacturers much harder than importers? Kneecapping your own industry is a pretty stupid thing to do.

Marquee Moon
Posts: 164
Joined: Sat Jun 14, 2008 5:13 am UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Marquee Moon » Wed Jun 23, 2010 4:32 am UTC

casiguapa wrote:Cutting corporation tax whilst taking more away from the poor isn't good business, it's vileness. VAT increases whilst giving some relief to businesses is nothing but an ideological driven attack on the working class. Nothing more, nothing less.


If you look at the tax rates of Scandinavian countries, (here's a good place) you'll notice that all of them (including Finland) have VAT's higher than the UK has (current and future 20%) and have Company tax rates lower than UK has currently (though UK will have the lowest in 4 years time when it will be 24%). Is Scandinavia fighting an ideological war against the working class?

Here's the data:
Country Company Labour VAT
Denmark 25% 38-59% 25%
Finland 26% 7.0-30.5% 22%
Norway 28% 28-49% 25%
Sweden 26.3% 0-57% 25%
U.K. 28% 0-40% 17.5%

Labour/Income taxes are a bit harder to compare. Denmark, Norway and Sweden all have higher top income tax rates, but Denmark Finland and Norway have higher minimum tax rates. (compared to the UK)

The logic behind low company tax rates is that "capital" is more mobile than labour (companies can relocate overseas). So we need to set lower company tax rates to attract businesses. I think VAT is considered the least distortionary type of tax, though frankly I'm not entirely sure on why. This means the government can get more tax revenue out of the economy with less of negative impact on growth, which means you can fund more social programs.

Kyrn
Posts: 937
Joined: Sat Sep 05, 2009 3:55 pm UTC
Location: The Internet

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Kyrn » Wed Jun 23, 2010 4:48 am UTC

Vaniver wrote:
bigglesworth wrote:Tax more on the people who can most easily bear the burden, the upper middle and upper classes, and spend less on them.
That's not a good recipe for economic growth, or keeping them in Britain.

Just for curiosity, why do you say it's not a good recipe for economic growth, if assuming the same amount of taxes are paid? (and not considering the possibility of people leaving Britain, as you had made both points separate)
I am NOT a snake.

Opinions discussed are not necessarily the opinions of the people discussing them.

joek
Posts: 95
Joined: Tue Apr 21, 2009 4:33 pm UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby joek » Wed Jun 23, 2010 6:54 am UTC

Kyrn wrote:
Vaniver wrote:
bigglesworth wrote:Tax more on the people who can most easily bear the burden, the upper middle and upper classes, and spend less on them.
That's not a good recipe for economic growth, or keeping them in Britain.

Just for curiosity, why do you say it's not a good recipe for economic growth, if assuming the same amount of taxes are paid? (and not considering the possibility of people leaving Britain, as you had made both points separate)

And why is it not a good idea for keeping them in Britain? Income tax on the rich is higher in just about every country in mainland Europe, as far as I can remember.

The thing I disliked about this budget though was Osborne's insistence that it would hit the rich the hardest. Raising VAT and cutting benefits is obviously going to hit the poor harder, so why bother claiming otherwise?

Kyrn
Posts: 937
Joined: Sat Sep 05, 2009 3:55 pm UTC
Location: The Internet

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Kyrn » Wed Jun 23, 2010 7:15 am UTC

joek wrote:And why is it not a good idea for keeping them in Britain? Income tax on the rich is higher in just about every country in mainland Europe, as far as I can remember.


To answer simply, it's because the world consists of more than mainland England.
I am NOT a snake.

Opinions discussed are not necessarily the opinions of the people discussing them.

User avatar
Dobblesworth
Dobblesworth, here's the title you requested over three years ago. -Banana
Posts: 1429
Joined: Wed May 30, 2007 12:06 pm UTC
Contact:

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Dobblesworth » Wed Jun 23, 2010 7:31 am UTC

I'm saddened that Gideon did nothing with alcohol/tobacco/fuel taxation, but on the other hand, I'm thankful that +10% cider tax got swept away.

I noticed nothing when VAT went down to 15% a year ago, like hell did it urge me to make more reckless purchases to stimulate the economy, and I really doubt I'll see anything this time around when it's at 20.

User avatar
bigglesworth
I feel like Biggles should have a title
Posts: 7461
Joined: Sat Apr 07, 2007 9:29 pm UTC
Location: Airstrip One

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby bigglesworth » Wed Jun 23, 2010 7:36 am UTC

Uh... that was kinda the point, that you wouldn't notice anything last time, but companies would get more cash and therefore less would go bankrupt. With an increase, you can bet that companies will pass it onto you.
Generation Y. I don't remember the First Gulf War, but do remember floppy disks.

Kyrn
Posts: 937
Joined: Sat Sep 05, 2009 3:55 pm UTC
Location: The Internet

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Kyrn » Wed Jun 23, 2010 8:00 am UTC

On related news, the planned tax relief for video games are also being scrapped.
http://games.slashdot.org/story/10/06/2 ... ?art_pos=1

(though there are some which would argue that the 1% tax cut for all companies is more beneficial)
I am NOT a snake.

Opinions discussed are not necessarily the opinions of the people discussing them.

Marquee Moon
Posts: 164
Joined: Sat Jun 14, 2008 5:13 am UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Marquee Moon » Wed Jun 23, 2010 10:47 am UTC

Kyrn wrote:
Vaniver wrote:
bigglesworth wrote:Tax more on the people who can most easily bear the burden, the upper middle and upper classes, and spend less on them.
That's not a good recipe for economic growth, or keeping them in Britain.

Just for curiosity, why do you say it's not a good recipe for economic growth, if assuming the same amount of taxes are paid? (and not considering the possibility of people leaving Britain, as you had made both points separate)

(emphasis mine)
Why would you assume that? I think Vaniver's point is that when you raise taxes on the rich too high, they'll decide to work less, which would be bad for economic growth.

User avatar
SlyReaper
inflatable
Posts: 8015
Joined: Mon Dec 31, 2007 11:09 pm UTC
Location: Bristol, Old Blighty

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby SlyReaper » Wed Jun 23, 2010 11:11 am UTC

ian wrote:
It's not regressive. It's just not as progressive as you'd like it to be.

poor people spend a higher percentage of their earnings on things that have VAT, than richer people, hence it is regressive.

Which is bollocks when you pair it up with the increase in personal allowance. The increase in personal allowance gives every worker a £200 per year tax cut. If you have a low income, you don't buy as many VAT-chargeable things as someone with a higher income would, so the increase in VAT for this low income person would be somewhat less than £200 per year. A net gain. However, a rich person will typically spend a lot more on VAT-chargeable things and so the rise in VAT will cost him considerably more than £200. A net loss.

VAT-chargeable goods will cost about 2.1% more than they did before. £200 divided by 0.021 is about £9500. In other words, you'd need to be spending more than £790 per month on VAT-chargeable goods to be worse off under the new rules. I'm as middle class as they come, and I don't spend nearly that much on VAT-chargeable things. Someone with less income than me will spend even less.

Obviously I'm not taking into account benefit freezes and the like because I haven't the foggiest idea how they work.
Image
What would Baron Harkonnen do?

ianf
Posts: 165
Joined: Fri Jun 19, 2009 9:43 pm UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby ianf » Wed Jun 23, 2010 11:36 am UTC

Marquee Moon wrote:Why would you assume that? I think Vaniver's point is that when you raise taxes on the rich too high, they'll decide to work less, which would be bad for economic growth.


There are other issues too, I think, like finding more creative ways to pay less tax. The obvious way is just to do more "cash in hand" work. That obviously hits the the tax raised (because you're not paying any). Another issue would be that it's easier to hide income offshore than in the UK. So, in an effort to avoid higher taxes, people will take some portion of their money offshore and that money will be lost to the UK economy (in that it can't be used by banks to offer mortgages, loans, etc).

But I think that the real answer is that nobody knows what the effect would be - it's just too difficult to try to predict. Clearly at one end of the scale is a single tax rate and at the other end of the scale is something like a 90% upper band. In those situations, I think that things are pretty clear (for example, if I knew that a pay rise would take me into a 90% tax band, I'd probably elect to go for more holidays than more money). But the problem is that it's impossible to quantify the effect of the difference between a 40% and a 60% tax band, for example.

When all is considered, this is about ideologies (or perhaps buying votes) rather than any rational, scientific process. It's clear that this is what the Tories were going to do once they got into power, so it's not really unexpected. What I think is interesting is what it will mean for the Liberals once this coalition falls apart. It seems to me that things like a VAT rise are the opposite of their stance before the election. I would expect many Liberal voters to be very disappointed with this.

User avatar
ian
Posts: 706
Joined: Fri Mar 07, 2008 3:55 pm UTC
Location: Sealand

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby ian » Wed Jun 23, 2010 11:48 am UTC

SlyReaper wrote:
ian wrote:
It's not regressive. It's just not as progressive as you'd like it to be.

poor people spend a higher percentage of their earnings on things that have VAT, than richer people, hence it is regressive.

Which is bollocks when you pair it up with the increase in personal allowance. The increase in personal allowance gives every worker a £200 per year tax cut. If you have a low income, you don't buy as many VAT-chargeable things as someone with a higher income would, so the increase in VAT for this low income person would be somewhat less than £200 per year. A net gain. However, a rich person will typically spend a lot more on VAT-chargeable things and so the rise in VAT will cost him considerably more than £200. A net loss.

VAT-chargeable goods will cost about 2.1% more than they did before. £200 divided by 0.021 is about £9500. In other words, you'd need to be spending more than £790 per month on VAT-chargeable goods to be worse off under the new rules. I'm as middle class as they come, and I don't spend nearly that much on VAT-chargeable things. Someone with less income than me will spend even less.

Obviously I'm not taking into account benefit freezes and the like because I haven't the foggiest idea how they work.

Sure, when you pair them up, but the actual increase in VAT alone is certainly regressive. Considering the Cons/Libs were going crazy over how much they were helping the lower earners with this personal allowance increase, this is pretty much a kick in the face to those they said they were trying to help.

User avatar
Velict
Posts: 609
Joined: Wed Dec 24, 2008 9:07 pm UTC
Location: Icecrown Citadel

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Velict » Wed Jun 23, 2010 1:07 pm UTC

Indon wrote:Eew, VAT. Why not use sales taxes, if you want to target consumption?

George Mankiw explains this nicely.
http://gregmankiw.blogspot.com/2009/10/ ... d-tax.html
From a strictly economic standpoint, a VAT is great. It is essentially a flat consumption tax, like the so-called FairTax, but implemented in a way to reduce compliance problems. Because it is collected in stages along the chain of production, rather than all at the retail level, tax evasion is more difficult.


I'm saddened that Gideon did nothing with alcohol/tobacco/fuel taxation, but on the other hand, I'm thankful that +10% cider tax got swept away.

I noticed nothing when VAT went down to 15% a year ago, like hell did it urge me to make more reckless purchases to stimulate the economy, and I really doubt I'll see anything this time around when it's at 20.


This is why people favor VAT. It doesn't hugely affect consumption, although it does provide a great deal of revenue for the government.


Vaniver wrote:That's not a good recipe for economic growth, or keeping them in Britain.


Nor is Greek-like deficit spending, or projections that include a majority of government taxation going towards paying off interest on debt.

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: UK VAT rate to be raised to 20% in Jan 2011

Postby Vaniver » Wed Jun 23, 2010 2:11 pm UTC

Kyrn wrote:Just for curiosity, why do you say it's not a good recipe for economic growth, if assuming the same amount of taxes are paid? (and not considering the possibility of people leaving Britain, as you had made both points separate)
Per capita economic growth comes from several sources. The "per capita," or for each head, cuts out population growth as a source of economic growth (and actually makes it a negative effect), and so what's left are improvements in technology, capital, and allocation. Technological growth is easy to see, and is largely proportional to R&D spending.* Capital growth is the money put away for the future, that gets turned into new machines, buildings, and firms. Improvements in allocation are the market's normal sorting process of removing the chaff and expanding the wheat, and includes things like Michael Jordan going back to basketball from baseball or the removal of a distorting subsidy or tax.

Corporation's post-tax take-home income, generally called profits, is generally spent on capital accumulation, particularly the expansion of that business. Moving that money from corporations / investors to the poor is very unlikely to result in increased capital accumulation. Note also that taxes on corporate profits make successful businesses worse-off, but do not make unsuccessful businesses worse-off. They're profit taxes, not revenue taxes. The higher corporate taxes are, the smaller the edge successful businesses have on unsuccessful businesses; leading to lower gains in allocation (where an expanding good business is able to eat market share of a stagnant bad business).

*One trick pulled by some company turnaround experts is to slash R&D spending, raising short-term profits by decreasing short-term costs. The company will be 'turned around' and sold off to someone else- who then discovers their market position is rapidly eroding because they invested less in R&D than their competitors. Between countries, this isn't as significant an issue as between companies (if American companies have better tech, they can just replace the British companies and Britain won't notice much).
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.


Return to “News & Articles”

Who is online

Users browsing this forum: No registered users and 39 guests