Osborne’s VAT increase: regressive and avoidable

George Osborne’s decision to raise VAT to 20 per cent from January 2011 has been widely described as regressive, including by the new Head of the Office of Budget Responsibility Robert Chote. Mr Chote has also emphasised the extent to which raising VAT was not unavoidable, and was in fact a choice made by Mr Osborne.

George Osborne’s decision to raise VAT to 20 per cent from January 2011 has been widely described as regressive, including by the new Head of the Office of Budget Responsibility Robert Chote.

Mr Chote has also emphasised the extent to which raising VAT was not unavoidable, and was in fact a choice made by Mr Osborne:

“When Mr Osborne said that ‘the years of debt and spending’ made the £13 billion increase in VAT unavoidable you might just as well say it was his desire to cut other taxes that made it so.”

The Chancellor’s decision to raise VAT should come as no surprise; it has been the preferred tax of Conservative Chancellors the past forty years.

When VAT was introduced, by a Conservative government in 1973, it was set at 10 per cent. Geoffrey Howe, despite promising not to “double VAT” in the 1979 election campaign, raised it to 15 per cent. It was then increased to 17.5 per cent by Norman Lamont.

In the 37 years since its introduction, VAT has risen from 10 per cent to 20 per cent. Meanwhile the basic rate of income tax has fallen from 30 per cent to 20 per cent.

This shift from raising revenue through progressive income tax to raising it through regressive indirect taxes was one of the hallmarks of the last Conservative Government.

Taxation-since-1978-79

When Mrs Thatcher came to office in1979, 39 per cent of revenue came from direct personal taxes and only 33 per cent from indirect taxes. By 1996/97, the proportion of revenue raised from direct taxes had fallen to 35 per cent and that from indirect taxes had risen to 37 per cent. Between 1997 and 2010, more revenue was raised from direct taxation than indirect taxation in every year.

26 Responses to “Osborne’s VAT increase: regressive and avoidable”

  1. Shamik Das

    Osborne’s VAT increase: regressive and avoidable:- //bit.ly/cgMmRR by @DuncanWeldon on @leftfootfwd

  2. Will Straw

    As of January, VAT will be the same level (20%) as income tax for the 1st time. The 30 yr trend is deeply regressive //bit.ly/cgMmRR

  3. jennifer roberts

    RT @leftfootfwd: Osborne’s VAT increase: regressive and avoidable:- //bit.ly/cgMmRR #ConDemNation

  4. Kevin Richards

    More proof that the ConDems policy is regressive -@leftfootfwd: Osborne’s VAT increase: regressive and avoidable //bit.ly/cgMmRR

  5. Jon Thomson

    It's almost like they are working towards a nice regressive flat tax //bit.ly/cgMmRR

  6. Jon Thomson

    RT @wdjstraw: As of January, VAT will be the same level (20%) as income tax for the 1st time. The 30 yr trend is deeply regressive //bit.ly/cgMmRR

  7. Amanda Ramsay

    RT @wdjstraw: As of January, VAT will be the same level (20%) as income tax for the 1st time. The 30 yr trend is deeply regressive //bit.ly/cgMmRR

  8. Peter Raymond

    RT @leftfootfwd: Osborne’s VAT increase: regressive and avoidable:- //bit.ly/cgMmRR #ConDemNation

  9. Malcolm Evison

    Osborne’s VAT increase: regressive and avoidable | Left Foot Forward: //bit.ly/9AjaAi via @addthis

  10. Duncan Weldon

    RT @shamikdas: Osborne’s VAT increase: regressive and avoidable:- //bit.ly/cgMmRR by @DuncanWeldon on @leftfootfwd

  11. Anon

    I was going to make an incisive and interesting comment, but instead I’m just going to point out that that first graph looks like a cock.

  12. Larry Gardiner

    RT @leftfootfwd: Osborne’s VAT increase: regressive and avoidable:- //bit.ly/cgMmRR #ConDemNation

  13. Christopher Allison

    RT @leftfootfwd: Osborne’s VAT increase: regressive and avoidable:- //bit.ly/cgMmRR #ConDemNation

  14. John Lees

    I agree totally avoidable – we should cut welfare instead – very unfair on the working man having to subsidise all the wasters.

  15. Brogan wrong to credit Osborne with lowering interest rates | Left Foot Forward

    […] an annual saving of £450 annually, easily swallowed by the £500 per household hit from the increase in VAT. Share | Permalink | Leave a comment Click here to cancel […]

  16. Guido Fawkes

    I think a lot of Conservatives favour shifting the tax burden from capital and income onto expenditure because it is discretionary. I think it means we are in a permanent high tax environment which is undesirable.

  17. Andy Sutherland

    RT @shamikdas: Osborne’s VAT increase: regressive and avoidable:- //bit.ly/cgMmRR by @DuncanWeldon on @leftfootfwd

  18. Ell Aitch

    RT @leftfootfwd: Osborne’s VAT increase: regressive and avoidable:- //bit.ly/cgMmRR #ConDemNation

  19. Bangor Uni Labour

    Osborne’s VAT increase: regressive and avoidable //fb.me/CdwCX2tR

  20. Mr. Sensible

    Whenever the media ask a Liberal Democrat ‘What have you got out of this coalition?’ The first thing they will point to is the increase in the personal income tax allowance. What they don’t tell you is that this is 1 of the things paid for by the increase in VAT.

    This is 1 of those things that could depress the economy by stopping people, and indeed businesses, spending.

    Guido, it’s OK saying that spending is discressionary, but if people aren’t spending that’s not good for the economy.

  21. Mike Finn

    Ignore the fact it looks mildly rude; that graph is depressing //bit.ly/cuDvRM

  22. aliwalker84

    RT @wdjstraw: As of January, VAT will be the same level (20%) as income tax for the 1st time. The 30 yr trend is deeply regressive //bit.ly/cgMmRR

  23. Syed Farrukh Bokhari

    Osborne’s VAT increase: regressive and avoidable //bit.ly/cuDvRM

  24. Herman Santiago

    RT @leftfootfwd: Osborne’s VAT increase: regressive and avoidable //bit.ly/cuDvRM

  25. Small companies pay most corporation tax as Britain fuels new race to the bottom | Left Foot Forward

    […] Times and above – outlines the race to the bottom in detail. The fall has occured while VAT has risen over a similar period from 10% to 20%. The Oxford University report outlines that: “in the June 2010 Budget, […]

  26. Nine economists tell George Osborne how to fix the country | Left Foot Forward

    […] Osborne’s VAT increase: regressive and avoidable – Duncan Weldon, September 14th 2010 Share | Permalink | Leave a comment Comments […]

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