Value added?

The VAT rise, which occurred back on Tuesday, has raised a number of questions and points. Namely, that there are a lot of people who don’t think or even do their sums before they call into radio talk shows. I heard one woman ranting about how “Something that costs £10 will now be £12.50”. Er, no. That would actually be a 25% increase. A lot of other people had equally bizarre theories, claiming in one case that “prices will rise by 20%”. Er, again – no. VAT may be going up to 20%, but it was already at 17.5%. Another little nark is people and businesses that make the claim that prices will rise by 2.5%. Again, no. If a £100 item is subject to a 2.5% VAT increase, the price would rise only by 2.13%.

Right, the maths over, there were a few other things that I found despairing yet amusing. Businesses that claim that this rise will put them out of business were another firm favourite. Quite frankly if a business’ margins are so tight that having to raise prices by 2.13% to cover the VAT increase will put them out of business then they were running on questionable economics anyway. Other points that prices will be hiked by a lot as retailers try and sneak in a boost to the profit margin and blame it on the VAT increase were also somewhat questionable. Yes, some businesses might try this but the consumer is not that thick (one hopes). Businesses that try to profiteer off the back of this will be punished by the consumer, just as retailers have been punished for attempts to profiteer in the past.

One thing that annoyed me the most was the chancellor’s boast about how the VAT rise would be a boost for jobs. Who is he trying to BS? He would have been well advised to keep his gob from shooting the breeze on that one. People aren’t that stupid Mr. Osbourne, so keep your political double-speak to yourself because we all were made to read George Orwell’s 1984 at school so know how it works.

Will the VAT rise make a huge difference? It remains to be seen. In the grand scheme of things, it isn’t a huge amount extra. But it is one extra cost amongst many extra costs that the British public has to endure, and I can’t help thinking that at some point there will be a straw that breaks the camel’s back.

The very real problem though is that certain things are subject to VAT that quite frankly should not be. Fuel is the big thing. Now, VAT is supposedly a luxury tax – hence ‘value added’. I rather feel that fuel is a necessity, not a luxury and I’m sure there are an awful lot of people filling up their cars to be able to commute to and from work who would agree. We already pay a stifling amount of fuel tax already, so it is rather galling to then find another tax heaped on top of that. What is more in a rather unfair piece of double accounting, the government makes us pay VAT (now at 20%) on the proportion of the fuel price that was already tax in the form of fuel tax. I’ve seen pump prices now rise to beyond the 130p/litre mark in a lot of places. That’s £5.85 per gallon if you want to strip away the façade that tries to hide from people the true cost of this commodity. Remember when prices were actually on the pump in gallons? Back then they would not dare raise the price by 4.5p per go, but they do just that now thanks to using a smaller unit of measurement. One for the conspiracy theorists I think!

I leave you with a sobering thought in the wake of the VAT increase. Next time you see a lorry trundling long distance up the motorway, spare a thought for the driver. In the course of his shift, the lorry will use a greater value of diesel than they are getting paid to drive it.

One thought on “Value added?

  • 7 January 2011 at 09:23
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    As much as I hate to see a tax rise, I would have rather seen a reduction in waste, it does give the government a once-in-a-lifetime-not-to-be-missed opportunity that could never have occurred without the coalition.

    Just using the extra tax revenue to sustain spending will result in a long drawn out recovery, there needs to be investment in infrastructure. There has already been over a decade of stagnation.

    VAT is a much fairer tax in that it affects everyone and not just the working poor who are usually hit hardest. In a time of recession the idle and rich should be expected to take their fair share of the pain as well.

    When things get better it will now be possible to remove some of the unfair taxes that do target the working poor very heavily, like income tax, road tax and fuel duty which are inconsequential to the rich and idle. The transport tax alone levied on someone on minimum wage in a rural area can represent 50% of their income – hardly a fair tax.

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