Tories refuse to rule out VAT increase

As well as hitting the poorest through a freeze on working-age benefits, the Tories may also be planning to hit them again with a hike in VAT.

As well as hitting the poorest through a freeze on working-age benefits, the Tories may be planning to hit them again with a VAT hike

Just 24 hours after making a conference speech in which he promised tax cuts for ’30m people’, David Cameron has refused to rule out an increase in the rate of VAT to pay for it.

The promises made by Cameron yesterday, which included raising the threshold for those paying the 40 per cent rate of income tax and increasing the personal allowance, are set to cost over £7bn to fund.

Asked today about his party’s £7bn spending committment, Conservative Party chairman Grant Shapps refused to rule out increasing the rate of VAT in government:

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

The government has already put up VAT once, from 17.5 per cent to 20 per cent in January 2011, and is now refusing to rule out doing so again. VAT is considered a regressive form of taxation as the proportion of an individual’s taken by the tax falls as they move up the income scale – as this (albeit dated) graph from Tax Research UK demonstrates:

VATj

And as the report states:

“On this basis an unambiguous conclusion can be drawn: VAT is regressive.”

So as well as hitting the poorest third of the population through a freeze on working-age benefits, the Tories may also be planning to hit them again through a hike in VAT.

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19 Responses to “Tories refuse to rule out VAT increase”

  1. DaveL

    Labour go on about a cost of living crisis, but have made no mention of dropping taxes. The biggest expense I have to budget for is government.

  2. Peter Martin

    VAT is a tax on consumption (and therefore an encouragement savings). That makes it a good tax for anyone who believes in progress and growth

    Why?

    How is it possible for anyone to invest in increased production, ie growth, if the aggregate demand of for that production is insufficient due to the over-taxing of that consumption?

  3. 137point036

    Question 1: are you against all taxes (and all spending by government)?
    Question 2: If there is to be tax, and taxes on consumption are out, what do you want to tax? The choices seem to be income or wealth. Do taxes on those not influence savings and investment in production and growth?

  4. Peter Martin

    Q1) No. Taxes are necessary
    a) to make the currency desirable. That’s what makes $$ and ££ worth something even though they are no longer backed by anything tangibly valuable like gold.
    b) to control aggregate demand. Taxes are needed to prevent inflation. Its only when inflation looks like being a problem that they need to be raised. Taxes aren’t needed to raise revenue.
    Yes spending by government is desirable. Just on what, and to what extent, is largely a matter of political opinion.

    Q2) Consumption taxes aren’t out. But consumption shouldn’t be over-taxed. Taxes on income and wealth are again a matter of political choice. As is the balance between indirect and direct taxation.

    The overall level of taxation should be set such that aggregate demand in the economy doesn’t lead to higher than acceptable levels of inflation.

    Savings aren’t needed for investment in production and growth. Banks create money when they lend. They don’t use lend out savings! So investment, via the creation of bank credits, both creates extra taxation and savings. That’s the opposite way around from the conventional wisdom.

  5. 137point036

    If savings are not needed, why don’t the banks (voluntarily or at the point of a gun) just create the credits which will get the economy buzzing?Have the last 6 years been a waste?

    You seem to move a lot of tax decisions to politicians. Do politicians have secret knowledge? I wish they would share it with the people they represent. We should be told. For starters, how do they explain the poor harvest from their choices in last 6 years?

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