VAT to be cut by at least 2%!

[Atomic]

Just seems a cheap trick to me.

It depends on retailers passing on this cut. I'm sure there will be costs in prices being adjusted on leaflets, signs, posters etc to reflect the new rates. Retailers might just up the net price of everything by 2.5%.

Even if we do get money saved I'm very inclined not to spend it and put it in an ISA so when 2011 or 2012 comes I have some money there to pay for the high taxes that will come to pay for all this.

Who was it who put VAT up to 17.5% in the first place? Oh that's right, the Conservatives

Labour have had along time to reduce it and have they?

Have the Lib Dems proposed any policies to reduce the rate of VAT?

Labour maybe cutting VAT now, but they are a taxing party, and in the long term we're going to be payin more taxes than ever.

 

[dirtydog]

Who was it who put VAT up to 17.5% in the first place? Oh that's right, the Conservatives

Not to mention imposing VAT on fuel (electricity/gas that is) which we are unable to reverse due to EU membership.

In fact the Tories wanted VAT on fuel to be 17.5% as I recall, but the Labour opposition managed to get it pegged to 5%.

 

[MrMoonX]

the prices wont go down, most businesses will see this as 2% extra profit on all items sold, just seems to me like most places will just profiteer from this

 

[aardvark]

wow - the people in charge are looking more and more like desperate fools. This will make no difference and give us higher taxes in the future.
Good old labour governments -they always screw the economy in the end! (it would be funny if it wasn't so true)

 

[dirtydog]

the prices wont go down, most businesses will see this as 2% extra profit on all items sold, just seems to me like most places will just profiteer from this

Even if businesses are the only ones to see a direct benefit from this - and I don't believe that would be true, but even if it was - that doesn't mean this measure would not have the desired effect on the economy. If businesses are more profitable they are less likely to lay people off.

 

[Dolph]

I respect (and your quite right) that any tax cuts must be funded at some point in the future, there's no free money right. But ask yourself what's worse [A] A high cost now, but the result is to stimulate the economy and avoid a severe recession or Allow the economy to fall into a steep recession.

More times that not action [A] is preferable, because in totality will actually be far far more costly. Secondly even if the total cost of both programs are throughly equal, the repayment of the costs of [A] can be spread out depending on how the government chooses to borrow. So [A] is achievable even if it is expensive without "a huge time bomb". How do they do it? Well they'd issue government bonds I'd guess at a range of different maturity dates, so there's no one big hit like you seem to fear.

The task for the Labour at the moment is to boost demand. Now how do you do that? Well there aren't that many things you can do on a macro scale - we've already cut interest rates (Well the MPC have who are independent of the government anyhow), they can cut taxes (which is actually what they're doing now).

What else could they do? Well spend huge amounts on public projects (bridges, roads, general infrastructure). The time for that to take an effect is slow, very slow and in it's early stages it's a targeted mesaure - I.e. initially it'll impact on the construction sector then it'll feed through to the entire economy etc.

The strange thing about economics (and people) is they often ignore reality. Now the government could cut income tax to 15% and VAT to 5% but unless people actually believe that'll make the economy avoid recession - it's essentially useless! Why? Because people would tend to save the extra money (in case the economy did fall into recession) rather than spend the extra money they have. In essence the government (obviously) have to try and avoid a severe recession, they are doing what they can. The only thing (and none of us know this yet) that will enable us to know if this tax cut is a good plan is how the market reacts to it, and in turn how the public respond to it. If consumer confidence increases significantly due to the tax cut, it will, without doubt been a great move (people'll be off spending again), but if the markets and the public don't increase in confidence it'll have just been a waste of money.

The point is that if Labour had shown some fiscal responsibility in the past, this would be much more affordable. Because of the policies of the last 11 years, we're in no position to be taking on more debt for the country now.

This situation is a natural result of Labour's economic irresponsibility when the going was good, and that's why this plan is irresponsible now.

 

[dirtydog]

The point is that if Labour had shown some fiscal responsibility in the past, this would be much more affordable. Because of the policies of the last 11 years, we're in no position to be taking on more debt for the country now.

This situation is a natural result of Labour's economic irresponsibility when the going was good, and that's why this plan is irresponsible now.

You are back to offering recriminations again, rather than solutions.

I suspect you either didn't read, or comprehend dangerstat's post.

 

[mangobreeder]

Whoppie do 2% hardly anything.

its actuall 2.5%

and its all they are allowed to the the EU has set a minimum level for VAT which is 15%

 

[AWPC]

Radical times need radical solutions.

Will never happen but they should just abolish VAT for say the next 6 months to stimulate growth as it would take time to filter through to the mainstream economy anyway.

Half measures will do nothing . The interest rate cuts are not being fully passed on by everyone did Labour learn nothing from this (seems not).

UK Government can survive for 6 months with no VAT income and in that time people will be encouraged to spend a little bit of savings so the economy can recover but its probably too late now anyway and it needs to run it natural course of failure in order for a recovery to happen.

Labour must be sitting on some pretty dire economic news if they are considering this anyway as regardless they know they will not get re-elected as people are not happy with many of their policies.

Logic & commonsense suggest that even if the UK could escape the downturn (not possible as its a global economy nowadays) almost every other major trading partner will not so pointless exercise and waste of more tax payer money to fund it.

Zero income tax & zero VAT for 6 months is about the only thing Labour could do to get re-elected now (not going to happen is it).

 

[Skeeter]

This cut will cost the government £18bn

Expect that to be reclaimed elsewhere, probably from us evil motorists.

 

[Skeeter]

Zero income tax & zero VAT for 6 months is about the only thing Labour could do to get re-elected now (not going to happen is it).

Goodluck. Radical change like that would throw the econony completely out, and then in 6 months time the economy will collapse when everyone is suddenly expected to loose 20% of their wage and spend 17.5% more on things...

think about it, all the major turmoil that is about has come from changes in interest rates and inflation rates of merely 2 or 3%... In terms of national or global economy, fractions of percentages make huge differences. Stop thinking narrow minded.

 

[meghatronic]

This cut will cost the government £18bn

Expect that to be reclaimed elsewhere, probably from us evil motorists.

That's the beauty of the Labour plan... they won't have to worry about it. Tories will have to recoup the losses, via increased taxation, grow unfavourable in the public eye, and thus Labour get voted in again. Brilliant plan.

 

[dirtydog]

This cut will cost the government £18bn

Expect that to be reclaimed elsewhere, probably from us evil motorists.

Raising taxes elsewhere at this time would defeat the object of it and I don't expect to see that happen.

As I said earlier, in theory the net cost of this could be zero. If it saves us from a deeper recession than we would otherwise face then it could actually save the country billions. You have to consider the whole picture and not just what the initial cost is on paper - just as with the bank bail-out package.

 

[arfur]

I run my ow business selling products, I sell them for what I think they are worth not xx amount + VAT, therefore I MAY be able to buy them cheaper from my supplier but that doesnt mean I will sell them for less, I would rather make more profit to compensate me for the screwup the county is in and to help reclaim the increase in corporation tax I have to pay just for having my own business, I think its gone up 2% this year and 2% next year.

 

[Ironic Namesake]

Great news for my business - we buy in UK and export so means we have to finance less VAT , better cashflow

 

[Kemik]

Lawyers, Accountants, Professional fees that has VAT added on top - you will see a change
McDonalds, Burger King - No chance. that Whopper meal is not going to go from £4.99 with a 2.5% cut.

Shops where prices are already fixed in the system or ticket - it'll costs hundreds at least or thousands on manpower to re-enter or re-print all labels for the prices and they simply won't bother, why would they? They make more money by nothing doing something, so there is no incentive to go cheaper.

What happen in a year's time when they put the VAT back to 17.5% ? Shops will see it as a price hike and put all their prices up, add inflation, then everything will seem twice as expensive !

Most intelligent answer so far.

 

[Dave M]

If they can afford it they should guarantee interest payments for anyone made redundant.

The fear of losing your job and not being able to meet loan / mortgage payments is what it stopping people spending, they're busy making a war chest in case the worst happens. If you make it clear they can't lose their home or car to this recession they may just feel safe to spend again.

 

[muon]

This TBH. This reduction will have ZERO effect as far as stimulating the economy goes...

Whats this based on? Complete BS? Or are you actually knowledgable to know about Ricardian equivalence. But then you would know it doesnt hold empirically in the short run due to various constraints as well as the failure of strong assumptions made by the theory.

http://en.wikipedia.org/wiki/Ricardian_equivalence

 

[LordSplodge]

If they can afford it they should guarantee interest payments for anyone made redundant.

The fear of losing your job and not being able to meet loan / mortgage payments is what it stopping people spending, they're busy making a war chest in case the worst happens. If you make it clear they can't lose their home or car to this recession they may just feel safe to spend again.

\o/ Hurray. That makes more sense than cutting VAT. Cutting VAT will only help those who can afford to buy luxuries. The low paid will get screwed.

I only hope they don't fund any tax cuts that are proposed for low income families from Middle Britain.

The rich get richer, the poor stay poor and the middle classes get screwd over all the while. Go Labour!

 

[Guv]

Of course it's not quite a 2% saving though for most of us. A 2% cut in VAT is on the net so it's actually a ~1.7% cut on the gross.

An item currently costing £10 is £8.51+VAT (17.5%). That will become £8.51+VAT (15.5%) which is £9.83. So the saving is £0.17 (£10-£9.83), which is 1.7%.

A 2.5% VAT cut would be a 2.13% saving on the gross. Not quite a £10 saving on £384.



arfur, CT is up 1% this year and 1% next year making it 22% in 2009.

I can't see most businesses passing the cut on unless they have to as competitors are.
As Raymond Lin says some items won't change in price.. a 99p or £9.99 items aren't going to be reduced in price.