VAT increase - The Costs

There is a post on Iain Dale's Blog about 15 reasons why a VAT cut won't help so how many of them also apply to the VAT increase that will occur hear on the 1st of December.

1. Deflationary for the next 12 months

Inflation Gaurenteed to be at leats 1.1%

2. Reduces business liquidity possibly by over £1bn

Yup, the same affect not sure about the value

3. Little or no help to SME’s in the B2B sector

No change there

4. Helps lower income individuals/families proportionately less than higher ones

Hits lower income groups more.

5. Gives businesses / retailers abilities to mark up price changes eg 70p chocolate bar is now 68.52p

Forces retailers to absorb the cost increasing, lowering there margins and reducing scope for growth

6. Reduces the price of cigarettes probably first time in 20+ years

Cigs go up again (no harm IMO)

7. Reduces alcohol prices – possibly encouragement to binge drinking

More increases...

8. Involves re-priceing by virtually all retailers at their busiest time of the year (supermarkets & garages can cope easily – others less so eg restaurants)

More costs, less expansion

9. Reduces restaurant/ hairdressers etc tip income Lower paid impact again

Reduces liklihood of tips due to higher costs

10. Requires HMC&E to recalculate Flat rate VAT scheme rates & notify SME’s – initial confusion

Yup, exepet it will be Revenue doing all this...

11. Reversal to recover lost income requires possibly an increase of 33.3% in VAT rate

okay so this one wont effect

12. Reversal of rate increase will slow recovery

It could slow any possible recopvery due to increased costs

13. Optional increase in Income Tax personal allowance could have given 75% benefit immediately ie December/ January wheras VAT benefit spread over 12 months

dosent effect

14. Doesn’t reduce food prices – idea why not negative VAT rate!

Increase food prices

15. Doesn’t significantly help housing market – critical

Definately dosent help housing market.

So two of the fifteen wont happen with the planned increase, but the increase will hurt in the long term.