VAT to be cut to 15 percent

Bruce Robertson

Except there are many, many thousands of systems out there with 17.5% hardcoded into them...silly young code monkeys!

mitch

The shops will split the difference to boost profit so no real use to anyone.Next!

maas101

So a 2.5% drop is supposed to kick-start the economy and stave off deflation. They'd better pray it does the trick before a 7.5% increase kicks in and really tanks the economy.

That's some gamble!

wonderfulforhisage

"The lowest the EU will allow"!!!

Who will rid us of these turbulent 'sprouts'? Not Ken Clarke, that's for sure.

Summer

I don't think saving 2.50 in ever 100 pounds is going to make me run out to the shops!!

And I see Robert Peston is acting as Government 'mouth piece' again!! "Oooooo if you don't spend now prices are going to go way up!!!!!!"

Maybe, it's just me but I don't see how people buying more 'stuff' in the shops - most often imports, is going to stimulate the economy. Companies are slashing costs, they are not going to rub their hands together and think there is going to be a boom, and so invest again. Surely, it's investment and productivity that gets the economy moving again.

Or am I just being too simplistic.

marksany

Why flog the Met Office, what have they done?

If they're going to flog anybody it should be some Americans, or bankers, or American bankers.

Gordon Musgo

Makes no difference for B2B trade, and therefore not as much of a stimulus as it could be.

Gordon Musgo

The Telegraph says a family will save £10 pw. Only if it is spending £20k pa on VAT full rate stuff. Unlikely. This is mot going to be enough stimulus. My idea would be to allow businesses 100'% capital allownacw for all purchases AND for partly written-down stuff on the accounts. Private individual could be helped by increasing tax allowances, eg give us some expenditure (clothing, travel) we can claim back from the taxman. Or how about changing company car rules, or raising the 40p private mileage?

Dan

Clarke's 'endorsement' will no doubt be used by Labour in the forthcoming debate.....

Verity

... " the lowest the EU will allow."

I stopped reading right there.

Christian Gowers

Menu costs will spiral to the sky.

I have always hated VAT and so I welcome this in theory, but It's surely not a great time to do it.

It'll be interesting to see what the Laffer curve is like for VAT, it aught to apply but I don't know where abouts we are on it.

John

I think its highly douubtful that a small change to VAT rates will affect purchasing decisions hence economic activity. Its much more likelyb that i) retailers will use this as an opportunity to rebuild margins ii) tax revemues will fall putting upward pressure on interest rates.

David Boycott

The fundamental problem this country faces is that real unemployment is already very high - 1.8 million on the dole and 2.7 million people on incapacity benefit - and getting higher.

Any fiscal stimulus should be aimed at increasing employment. Therefore, it should consist of an increase in the personal allowance.

Ken

Sun Teles headline: "Brown: I was wrong to claim I had ended 'boom and bust'". Be nice if this was up there on huge billboards tomorrow just as Brown's lapdog stands up to further ruin the country.

Gordon Musgo

Going back to the Telegraph article quoted, the objections are all in the comments. Too little, wrong place. £x.99 will still be £x.99. Imported goods priced in dollars will be going up anyway.

But how about capital allowances for business. The more I think about it the better it gets. Business gets a tax break if it buys now. Writing down existing capital to zero might be a bit too far, but there is no tax to be earned from bust firms, so what the hell. The govt pays in future income, the expenditure is now. Something similar for the individual is possible but maybe not with existing tax rules, unless there is some creativity, not usual in HMR&C.

You read it here first.

Short the UK

KISS:

UK plc

UK Banks lent billions/trillions to the UK consumer who went on a spending spree. The consumer Spread Bet on property, values went ballisitic. 1.1m buy-to-let mortgages iced the cake. Inflation ran rampage.

UK Banks played Casino Capitalism. They bet heavily on structured products and derviatives. Some levered 30x. Bust: N. Rock, A&L, B&B, Britannia, Cheshire, HBOS, RBS and LLoyds. Barclays?

UK Banks borrowed trillions on the international money markets to fund Spread Betting on Property and their Casino Capitalism gambling.

Now that property is crashing, structured products are dead and derviatives are blowing up, the banks are bust.

HMG has now decided to back-stop the liabilities of the UK banks and has so far probably lost ten's of billions. The recession/depression has barely started and the banks are broken.

UK property was wildly overpriced and a correction was due. I had not expected home owners who are unable to sell, to rent out their properties. There is little demand and the psychological inability of owners to cut their losses is making a bad situation worse. There is now a rental surplus and rents are falling rapidly. This will badly hurt the buy-to-let segment of the market. With rising unemployment the decline in property prices could be 40% to 50%.

The base of the economy is property. The banks cannot be stabilised until property prices stop falling. This looks impossible to halt. Job losses are sweeping the globe as the US consumer goes cold turkey. UK plc was built on The City and Property Speculation. Now both are in severe crisis and the State is expected to cushion the blow. This would be simple if the State had a surplus and a diversfied economy. The State has failed in this regard. It used Financialisation as it's growth engine and Property Specualtion to make the masses feel wealthier. There is now going to be job carnage in the City and tax revenues from this lucrative sector will collapse. Consumption was driven by rising property prices as homeowners extracted capital from an appreciating asset. It was a cashpoint machine. This consumption enabled the Service Sector to multiply and create many jobs. There was no real wealth generation. Just the spending of debt/credit. It was living for tomorrow.

The majority of this debt is held by British and Foreign banks. The British banks are starting to accept that they will never be repaid on some of this. The foreign banks are still hoping for repayment. If the foreign banks decide that they are not going to be fully repaid then why should they lend to UK plc in the near future? Why should they roll over the debts? They are now starting to see that UK economic growth was a mirage, a fools gold.

HMG now thinks that by fiscal stimulus UK plc can bounce from a recession that the BoE says will be V shaped - they expect the contraction to stop in late '09. By leveraging up HMG's balance sheet further, the downturn can be engineered to be a soft landing.

At this point you can become a Bull and think that the US will bounce back quickly (mid '09) and that the problems are but little hiccups: citigroup, gm, ford, amex, ge, et al. If you follow this narratvie you buy stocks and hold pounds.

If you think that this Bear market has barely got going and that it could last another 5+ years and that the FTSE could go below 3,000 then you get out of pounds and short the FSTE when it dead cats. You buy Euros, Dollars and pray for Blighty.

I base my judgement on the wisdom of the people I have researched over the past 16 months. I am convinced that this is an epic bear market and that Britain is in grave danger of needing an IMF bail-out. I will thus continue to short the pound. The emotional part of me wants to be wrong but the rational side of me knows that I am on right trade.

GBP will be the indicator of UK plc's future.

Dan

"Christmas shoppers could be given a boost if the Chancellor cuts the cost of VAT from the current 17.5 per cent that is added to almost all consumer goods on the high-street. If this was reduced to 15 per cent, the most likely possibility, it would cut the cost of a £500 television, for example, by £12.50".

BIG DEAL!

Gordon Musgo

And a comeback on VAT and the EU. IF we can drop it to 15% without begging the EU, fine. If the promised increase to 22.5% comes about, are we them allowed to lower it to 17.5 or 15 later, or does the ratchet effect mean it's stuck at 20+ for ever or until we realise we are letting foreigners decide the most fundamental economic numbers in our supposedly sovereign economy.
Bastards.

mitch

"it would cut the cost of a £500 television, for example, by £12.50". "

you could get more than that by haggling.
Brown is deluded but the soundbites will be catchy.

Susan Hill

People are waking up to one thing - they don`t actually NEED much of the stuff they`ve been buying. Food, fuel, utilities.. some clothing.. other than that they are looking carefully at everything they buy. They won`t dash out and start spending again on rubbish in a hurry... they are realising they are perfectly OK without thanks. Christmas will see people buying fewer presents and those that are useful or practical, not the sort of junk we are usually offered. Once you get into saving mode and out of the casual shopping/spending habit you discover how good it feels - a lot of people who HAVE money to spend are feeling it, and then there are all those who have none to spare. Save not spend. But of course the economy isn`t predicated to work like that. They want us to fritter it away.

Max Kaye

Mitch is right.

I bought an item of furniture yesterday.

The vendor wanted £399 + £15 delivery.

After a bit of haggling (the item was pretty fairly priced) we agreed £375 + £10 delivery - a discount of over 7%.

2.5% is really peanuts and won't send me into a shopping frenzy.

Neil

Bad idea. Most businesses reclaim VAT so this will have no effect on business investment. All this might do is increase consumer spending. Britain does not make any consumer goods (thanks to City spivs trashing the productive economy) so this means more imports.

floatingvoter

Is that it. A cut of 2.5%. Is that what people think is a tax cut these days. I weep I really do.

JimBob

How can a recession whose primary cause is debt be fixed by more debt? Dumbo will buy himself some nice headlines for Christmas but nothing meaningful will be come from the cut in VAT.

I see at least 2-3 years of business failures, bankruptcies and repossessions. Of course all of this will be in the private sector. It is much easier to create non-jobs than it is to get rid of them. In any case Labour 'don't do' public sector reform, and Dumbo isn't about to change that.

David Short

If is not a cut of 2.5pc. It is a cut of 2.5 points.

NorthernJohn

Summer, you're not even saving £2.50 in every £100. You're saving £2.50 in every £117.50

Hairy Airey

I remember it being announced in 1991 that VAT was going up from 15% to 17.5% to cover the cost of the "community charge" (ie poll tax). It's taken a long time to come down, but I don't think many businesses will drop their prices as a result.

Alan Ible

IS THIS RIGHT
How Much Money Will a 2.5% VAT Cut actually save you.
When reducing VAT on goods you would think it would save you £2.50 per £100 which does not seem a lot but I’m afraid it’s actually not even that good, please look at example below.
A television costs £100 inclusive of VAT at Current Time that means ex VAT it costs the following
£100 x 14.89% = £14.89 – (£100) = £85.11
If 17.5% VAT ADDED ON YOU WOULD DO THE FOLLOWING £85.11 X 1.175 = £100
If 15% VAT ADDED ON YOU WOULD DO THE FOLLOWING £85.11 X 1.15 = £97.88
£100 - £97.88 = £2.02

So for every £100 you would actually save £2.02 not the “£2.50” people think it will.

Peter Read

Alan - yes that's right.

John Confused

What about goods I ordered before the reduction in VAT that are being delivered after Dec 1st and payment is cash on delivery. Will it now cost me less?

Ran

Its a £2.12 saving on £100 actually, but yes you are right, its not 2.5%, as that is only off the VAT, not the total

Emanuel Crisp

John Con: The price you pay depends on the tax point, which is usually the point at which you get hold of the goods, so you will probably have an extra 1/47th of the total value back to spend on sweeties.

Mark Williamson CSE in maths

WOW where did you get that formula try this :-
£100 Divide by 1.175 giving the pice before vat at 17.5% = 85.106 + 15% = £97.872 giving a total saving of £2.13