There’s a lot of buzz around about a further increase in the VAT rates in the budget at the moment to help pay off the national deficit. Of course the boring of us are nodding our heads thinking “why did they ever cut it in the first place?”. But there you go, it happened.
Depending on whichever commentary you read, an increase in the standard rate of 1% or 2% would generate an additional £4bn - £5bn each year, so you can appreciate the appeal of doing so for the government. Average rates throughout the EC are a standard rate of 20% and a reduced rate of 8%, which means that our rates are currently on the low side. A lot of commentators are speculating that it would be politically and practically difficult to bring in a further increase within a few months of the return of the 17.5% standard rate. But frankly, any sort of tax increase is always political bad news and if there is another increase this year, at least businesses have the memory of the 1 January increase fresh in their minds and be aware of what they have to do to implement an increased rate. I suppose my main concern would be the effect on very small businesses - particularly retailers - who would probably have to absorb the additional cost themselves as it is difficult for them to pass it on to their customers.
I remember back in 1991, when the 17.5% rate was introduced to pay for the cost of the lost revenue from the Poll Tax (whatever happened to that?). I used to play in an amateur orchestra in London and one of our other players was an economist and one of the then chancellor’s economic advisors. I asked him why such a significant rate increase had been made with no advance publicity or discussion with the business community and he made the simple point that the government knew it would be unpopular but it was either that, an increase in NIC contributions or income tax. VAT receipts yield income more quickly for the government than other options and quite simply the government needed the income as quickly as possible.
I’m still not convinced that VAT will be increased in the Budget but I think we have to be ready to anything.
And a weekend of opposites!
Yesterday was a gloriously sunny day here in Leeds and I was out on my balcony in a tee shirt potting up my raspberry canes and some of my lily bulbs. It was lovely, although my tulips and daffodils are still only just peeping out of the soil. Apparantly our gardens are about a month behind this year because of the cold and snow we had at the beginning of the year, so most of our spring bulbs won’t be flowering until the end of March at the earliest.
Then this morning I woke to that quiet calm which only means one thing – fresh snow – and looked out of the window to see the Royal Armouries horses frolicking in the snow in the arena across the river! It’s an incredibly pretty sight, although I’m sure that most of us have really had our fill of snow for the rest of the century and hope that it all melts and goes away as quickly as possible!
Marie