Why the Tories really could put up VAT – and why it matters

VAT is a regressive tax because the poorest end up paying more. And the Tories won't rule out an increase

 

Labour has launched a new poster campaign warning that a Conservative government could put up VAT. I’ve not actually heard the Tories say they will put up VAT but, as was recently reported by Left Foot Forward, back in October Tory Party chairman Grant Shapps refused on the Daily Politics to rule it out:

Jo Coburn: Are you ruling out a rise in VAT?

Grant Shapps: Well I have absolutely no intention of writing future Budgets on your programme…

– BBC Two: Daily Politics, 2 October, 2014

Nor did the Conservatives rule out putting up VAT prior to the 2010 election – and up in went as soon as they came to office. Thus Labour’s warnings are not without substance.

VAT is a regressive tax because the poorest sections of the population end up paying more as a percentage of their income than the well off – the proportion of an individual’s income taken by the tax falls as they move up the income scale. As the excellent Richard Murphy has written:

“VAT is intently regressive – meaning that the burden of the tax falls much more heavily on low earnings households than it does on those with higher income.”

Even the Office for National Statistics has pointed out that direct taxes are progressive whereas indirect taxes (such as VAT)…

“Have the opposite effect to direct taxes taking a higher proportion of income from those with lower incomes, that is, they are regressive.”

Which means that Labour’s campaign poster is not as scaremongery as it looks at first glance. Or at least it isn’t as scary as an increase in VAT, a very real (and very regressive) possibility under the Tories.

James Bloodworth is the editor of Left Foot Forward. Follow him on Twitter

13 Responses to “Why the Tories really could put up VAT – and why it matters”

  1. peterjcs

    and Labour will put up National Insurance, Income tax, Corporation tax, Housing Tax

  2. Leon Wolfeson

    NI? Where’s the plans?
    Corporation tax? Where’s the plans?
    Housing Tax? Does not exist.

    Income Tax? Restoring the top marginal rate.

    0.2/4

    I’m hardly a Labour fan, but that was pretty poor.
    Also, income tax is progressive, VAT is regressive. (We should also be properly taxing non-job income…)

  3. Paul Smyth

    Good

  4. DaveWigan

    Na

  5. DaveWigan

    haha, the Party of low taxes. I always remember as a youngster hearing “take with one hand and give with the other” Nothing has changed in 55 years, except, we now give more to the rich re taxes and less to the poor. Goodness knows what another 55 years would be like !!

  6. Jack

    Cameron ruled out rises to VAT in PMQs this week in response to a question from Miliband. When Cameron asked if the Labour Party would rule out increases to NI, Miliband didn’t answer.

  7. Leon Wolfeson

    They already did so, to be fair.

    (Or rather, they’ve ruled out raising the base rate)

  8. Gareth Hunt

    “income tax is progressive, VAT is regressive”

    The IFS argues that the lower income individual gets a proportion of their income from the state. This can be in a multitude of different ways – from JSA to Tax Credits. It is an overestimation to argue that the poor pay more indirect taxes. If you take out this subsidy, then the proportion is misleading and meaningless.

  9. Leon Wolfeson

    Except the basic cash for living can’t be taken out.

  10. Gareth Hunt

    Well “basic cash for living” is pushing it a bit. We have been overly generous in terms of what we hand out. The reality is that some of these people are living in luxury – including one family on a Channel 4 News snippet who had PlayStation 4s, iPads and iPhones. People with expensive luxury items like this who are “struggling” are spending their money on the wrong things. This is part of the problem. We need to use prepay cards and other methods to help people focus their spending needs on the important and crucial purchases.

  11. Guest

    Illegally low benefits are “overly generous”. Why, some poor people can afford food and shelter.

    Channel 4 find one family, and then the entire poor are evil! Never mind they probably bought them when one family member had a good job. Nope, you gotta use this as an excuse, a *lie*, to punish the poor further.

    The reality is that the long-term poor have old laptops and a cheap phone – and yes, you need both in today’s world, especially when the government is discontinuing non-internet service delivery.

    But no, you need to use the hate myths to limit where people can spend, stopping them from shopping for bargains or using cheaper shops. Gotta get them buying only from a few large places where you have shares, important and crucial for your profits – and if they don’t have a local one, who cares in your world! It’s not like food is essential, after all.

    (And of course, nobody needs shelter – or for that matter pay more than housing benefit for their rent (despite that being the case for over 85% of private rented properties where people claim), or pay for utilities or…)

    The poor are allowed to eat too much for you, as malnutrition rises sharply. And as you said, you bitterly oppose the food aid which would be needed for the poor you hate so much. You’d rather people starve as you punish them for being poor.

    Your rabid hate for the poor rolls on.

  12. Gareth Hunt

    “The reality is that the long-term poor have old laptops and a cheap phones”

    Really? That’s poor? I watched Comic Relief and donated to ” real poor people” in Africa who scavenged food in waste dumps. I would double – no triple our 0.7% International Development budget to help poor souls living in abject poverty.

    Some Cait Reilly-esqe work shy individual with an old iPhone and an ancient MacBook pro really doesn’t get my sympathy on the help the poor rankings.

    The microcosm who use food banks less than a million in a country with nearly seventy million. Two million out of 35 million working people on zero hours contacts. Only 1.8m on jsa. Minute Numbers compared to the wider population. Let’s focus on everyone not the few.

  13. Leon Wolfeson

    “Let’s ignore the people who are being hurt”.

    No.

    And of course you are fine with helping Africans in ways which you won’t help the British. After all, you’re not in a position to directly lower the African’s wages, given the chance.

    How dare someone not be entirely cut off from work and access to government services! Nope, you have no sympathy unless they’re completely out of the world.

    The massive, rising tide of povery you are trying to brush away remains. “Only the peons” you cry, “Only the peons”. They’re not important to you. You try and stop discussion of poverty,

    Because rising poverty and lower wages is clearly your goal.
    Go home and stop attacking the British.

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