That is exactly what's going to happen, greedy businesses pocketing the difference and completley defeating the point of the vat cut, so the general public end up no better off and the recession just lasts longer.
VAT to be cut by at least 2%!
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That is exactly what's going to happen, greedy businesses pocketing the difference and completley defeating the point of the vat cut, so the general public end up no better off and the recession just lasts longer.
It wouldn't completely defeat the point because better off businesses means they are less likely to lay people off. This is good for everyone.
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Wrong. If business do not pass on cuts and earn extra profits, they have more money for investment, more money for spending, more money for wages etc, meaning less job cuts and more spending which in turn could stave off a complete collapse of the economy, which is more important!
Though back in the real world it will just go to the ceo's.
Who'll buy a boat or a car, or pony for their little princess, and the money goes back off into the system. or it will be invested in other compaineis, they arn't just going to bung it under the mattress.
Although they'd more likely invest in their own business so they can make more money every year rather than just that one.
Didn't help the Lehman Brothers when the directors took all the money that's for sure.
That company was run into the ground by an incompetent CEO - not all companies are badly run.
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Who will in turn spend it / invest it etc. Most CEOs are not going to sit back and hoard money whilst their company goes down the pan are they... Yes this has happened (LB), but that is not the norm.
As someone who owns a small business, a business which at the moment is growing and doing quite well, we are currently increasing our capital in the bank (saving for a rainy day) rather than withdrawing large dividends, investing in extra staff etc. What I am doing is bad for the economy. This is what will cause a deep recession. Too much saving, not enough spending = factories closing their doors = bad for everyone.
If our corporation tax was a bit lower, if we saw our sales increase, we would be less likely to "save for a rainy day".
Saving = more money in the banks = more investment and more interbank lending, that's no bad thing. If people had done that in the first place they would never have defaulted on their mortgages causing the sub prime crisis and credit crunch, but as usual labour gave no incentive to save and now we are in recession.
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It is if people stop spending!!
I think we can now look at the banking situation in a different light due to the the massive government bailout and assurances, and increased interbank lending due to the interest rate cuts.
I run my own business, if I can pay HMRC less thats good for me however I dont think that I should cut my prices, thats the wrong thing to do really to save jobs and my business. I wont be taking huge amounts out of the business as I cant afford to in the long run. I think a cut in interest rates and fuel duty would be a huge help to everyone.
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You are missing one vital thing - lending to the general public. The labour government has built the last 10 years on us borrowing and fuelling the economy through more and more borrowng. There is a three-fold assault on this, right throughout the range from the government downwards.
Firstly, the government (through the FSA) have tightened up regulatory compliance to the point where nobody wants to lend for fear of falling foul of the regulator. This has massively reduced the appetite for lending and it not happening. As a codicil to that, there are a pile of shark companies popping up threatening to sue left, right and centre for any lending that has been done, regardless of how well that lending was conducted.
Secondly, you have businesses who are tightening up their credit lines, to the general public and between each other. Much highstreet expansion has been built on credit - store cards, credit cards etc - and this is not available anymore. We aren't going to see that level of available credit for some time so people are going to spend MUCH less. The impact of a 2.5% lowering of VAT will not make up for the loss of £1000's per head of credit lines.
Finally you have have the individuals themselves. They are either scared witless by the media and what seeing their friends being made unemployed, borrowed to the hilt and staring at an IVA or both. Even if they could get credit, they are terrified of the consequences.
If anyone thinks there is going to be a quick-fix or a bodge to sort this out, they are wrong. House prices need to settle, peoples credit needs to settle and confidence needs to be restored. You can't wave a magic wand, tell people that stuff will be cheaper and expect to come out of a recession. The labour government has been about headlines and no substance and this is one more example tbh.
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A very telling report on the state Labour have got the country into. Pretty much every metric is worse than the conservatives at the start of the previous recession...
http://www.ifs.org.uk/bns/bn79.pdf
http://www.ifs.org.uk/bns/bn79.pdf
You don't pay VAT on a house
Might help car sales, but the amount you'd save you'd get more through discounts.
I assumed there would be VAT on a NEW home, they do charge VAT on new homes here in Czech.
Anyone else think this could be, in part, a rather sneaky way of curbing inflation, possibly creating room for further interest rate cuts? Currently inflation is sat at more than double the target level and although it is likely to drop in the short-medium term (especially now that oil prices have dropped off) it could be a way of keeping prices down and offsetting the upward pressure on inflation from any further cut in the interest rate.
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I'm not so sure on that. Even though current figures have inflation too high, the HMG know that the real problem facing us is below target inflation, or heaven forbid, even deflation?
I have come to the conclusion that the VAT system is completely pointless.
Ultimately, the person footing the bill is the non-VAT registered regular Joe.
The VAT system must cost business and the treasurey a lot of money to implement.
Surely there are some benefits to the system? What are they?
Instead of a 2% scrap, how about a complete scrap? How would this effect the economy? Obviously raise tax elsewhere but the treasurey would surely save a fortune on VAT admin/implementation costs?
Ultimately, the person footing the bill is the non-VAT registered regular Joe.
The VAT system must cost business and the treasurey a lot of money to implement.
Surely there are some benefits to the system? What are they?
Instead of a 2% scrap, how about a complete scrap? How would this effect the economy? Obviously raise tax elsewhere but the treasurey would surely save a fortune on VAT admin/implementation costs?
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Whilst much of this is true, I beleive the end-game is different. GB & AD have explicitly said that the the PBRT will set out a mid-long term plan of how the Treasury is going to pay for this. They will tell us today of deferred tax increases, they will tell us today of deferred reductions in public spending.
I beleive there are only two options available to HMG today.
Option 1
Do nothing. Let spending drop, let business close, let deflation set in, which will cause spending to drop even further (why buy a TV now if it will be cheaper in a few months?) Job losses, home reposetions, people unable to pay debts, banks will have even more bad debt etc etc etc. WHilst this option may actually be good in the very long time, in that it will completely rebalance the economy, long term, the pain it will cause for the next maybe 10 years or so will be unacceptable.
Option 2
Pump BILLIONS of Treasury money into the economy. Liken it to a massive capital and revenue investment in the hope that it will get people spending some money. I think there is an underlying hope that people will also try and reduce their debt where they can. If I use myself as an example, I have approx £10,000 of debt (not including mortgage), but I have approx £20,000 of savings. For the past few years this has worked well for me because the debt has all been at 0% because I played the card companies and did some 0% balance transfer whoring. However, when my last offer expires in May, I will just pay this off in full against my savings.
Personally, I am currently putting as much as possible into savings. I am saving approx £1,000 per month now, compared to £300 a month last year, where my income is around the same. However, the reason I am doing this is because in the next year or two we want to take advantage of the lower house prices and move from our current house to a new house. Ideally I want to keep our current house and let it out, so I know we are going to need £40,000 or £50,000 saved up for a 15% deposit on our next house to get a good mortgage deal. Being a company director with a low salary and high dividends, I know it will be even more important to have a good deposit.
Regarding my business, as I've said we're stockpiling profit in our bank rather than investing it in new staff or withdrawing it as big dividends etc.
Both of these are bad for the short and mid term economy.
As I see it, Option 2 the only option, because doing nothing will cause the economy to fall.