Did You Know That The VAT Rise Will Cost Families Average £520 A Year?
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Families face an average £520-a-year tax rise from VAT increase to 20% from tomorrow 4th January 2010.
This is expected to put around 3p on a litre of petrol, 6p on a pint of lager, £10 on a man's suit, £80 on a sofa set and more than £300 on a new car. Also, Electrical goods, phone bills, restaurant meals and holidays will also be more expensive after the 2.5 percentage point rise from 17.5%. VAT does not apply to most food, but is added to chocolate bars, fizzy drinks and household essentials such as washing detergents, pet food, shampoo, soap and beauty products.
Some retailers, particularly supermarkets, began pushing up prices to reflect the higher rate of VAT just before Christmas. And until February 1, stores are being allowed by the Government to apply the 20% rate by marking up the price paid at the till, rather than on shelf labels.
Taking all the above into account it seems to me just unlike another unfair stealth tax because it will hit the poor families hardest not the rich.
Responses (4)
Hi creativesaver, I'm pretty much in agreement with what you're saying here, but, to play devil's advocate for a moment, what would you suggest as an alternative to get the country's coffers a bit less empty again?
Hi Creativesaver ... yes this very figure was in the media over the last few days and while £10 a week seems manageable, it is simply on top of everything else. This does not seem to fit in with the governments ethos that everything else must be cut, cut, cut. And they expect us to live on less but surely only a financially bouyant society can service a VAT rise and make it pay. Less money circulating, inflation on the up, unemployment on the up and job security down ... surely less money changing hands sees less taxation coming back, not more?
The Chancellor has said that the increase in VAT is a 'progressive' measure and simply brings us into line with the rest of Europe. This man should have been a second hand car salesman! Time will of course tell but my bet is on a very recessive 2011 with VAT income actually going down. Watch this space.
On the other hand, we could reduce our consumption by 2.5% on VAT-able products. Not what the government want, but hey-ho ;-)
HI acMfool and welcome to Money.co.uk
With the current austere economic climate, I think that we will indeed reduce consumption on VAT-able products, not by conscientious objection, but simply by spending less on services and seemingly luxury goods. I don't think the government have got this right. This is just a 'surgical procedure' and bears no relation to the economic mayhem that such increased taxation will undoubtedly bring. You only have to see the current pump prices of fuel to realise that the economy will go into melt-down. I fear that the British Economy is in for a very depressed year, as will it's people be. And the VAT rise is nothing more that a weak and inefficient 'sticking plaster' over what is after all a global recession.
I have been shopping for my regular goods and notice that generally the VAT rise has been absorbed by the shop owners and the 99p shops are still charging 99p! In some cases there have been discounts on offer that were not there during Xmas. Has anyone else noticed this?
Erm, £520 seems high.
A 2.5% hike in VAT increases the cost of an item by 2.12% (not 2.5%, as this would actually be charging 2.5% on the 17.5% VAT already being charged).
£520 translates into a spend of £24,528 (520/0.0212). As this spend is only on VATable items and not food, household fuel (the gas and electric fuel VAT rate isn't changing), mortgage or rent and as this spend is net of income tax and NI then the "average" family must be very wealthy indeed!
Well done G-Man , not many people do their own sums they just go along with the majority and accept the media and political rhetoric
Actually average earnings in UK are about 500 pounds per week. So your figure suggests that the whole income is spent on VAT'd items ! Average disposable income in UK is about 15k pounds so if ALL that was spent on VAT'd items the average 2.12% VAT hike would be ...... about 320 pounds per year. However, that is money used after income tax is taken off which means in terms of gross salary the figure is .... about 425 pounds i.e. you would need a salary rise of between 1 to 1.5% to compensate for the VAT hike..
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You're so right, fruitcake. The money has to come from somewhere, and wherever it comes from we're all going to feel the pain.
It's been suggested that the VAT increase might lead us back into recession as people will stop spending, but surely taking the money from us in income tax or national insurance would have the same effect as we would have less disposable income to spend.
Yes, I agree, Feline123, it's a tricky one.
Fruitcake and Feline123 some interesting and valid points. Personally I think the national 'money-go-round', that is the amount of money in circulation and the way that is changes hands, is what the country's economic stability depends on. As I have replied below, I think that the VAT increase is just a surgical strike and is a big risk for the government to take at this moment in time. After all, it is alongside one of the biggest reductions in public spending that we have known, and those reductions are progressive and will continue to include more radical cuts as time passes. Public spending may seem the way to go, but it is public spending that keeps the country financially alive and I suspect from overt poverty.
I have always maintained that the country's Benefit System is simply a way to redistribute wealth and in a socially based system, that should work well. Two things we need to do to improve that (1) tax the richest more, including the absurd level of banking bonuses that contine and of course the absurd £40 Million worth of 'bonuses' given to MOD officials ( announced this week ) and, (2) create a department to cut the dramatic waste seen in the benefit system ... fraud, overpayments, badly targetted benefits ... I am sick to death of seeing people who are so-called disabled and in receipt of mobility based DLA climbing out of their brand new Nissan Qashqis ( paid for by the tax payer ) and walking into the supermarket. Gripe over!