Martin Vander Weyer’s Any Other Business
And so to VAT — an opening that I realise sounds about as enticing as a job ad for a shorthand typist in the Prime Minister’s office. Frankly, I doubt even Bob Monkhouse had a decent gag about VAT in his repertoire. But like many things that are not funny — Jonathan Ross hosting the Bafta awards, for example — tax on consumption is an inescapable fact of modern life. So, having ducked the topic last week in favour of high-class name- dropping, I’ll do my best this week, prompted by a Conservative statement that ‘We have absolutely no plans to increase VAT’. That means you may be pretty sure they have: in modern politics, ‘absolutely no plans…’ is a holding position that just happens to be missing its other half: ‘…actually written down anywhere that you’re likely to find them’.
But should we be angry about the prospect of paying an extra two and a half per cent to Chancellor Osborne on most of our purchases, because it will stoke inflation and give small businesses another kick in the nuts as they stagger out of recession? Or should we welcome it as a relatively painless substitute for bigger direct-tax increases and deeper cuts in public services? Indeed, is it possible, like Private Eye’s Revd J.C. Flannel on the subject of the H-bomb long ago, to be ‘in a very real sense, both for and against’ a VAT hike? In order to guide you on such an arcane topic, I’ve put myself through a weekend Teach Yourself VAT tutorial that has left my brain spinning — highlighting one reason why chancellors like messing around with this method of money-raising: almost no one who’s not an HMRC official or a convicted fraudster actually understands how the damned thing works.
But here goes. Every extra percentage point on the standard VAT rate nets the Treasury £4.5 billion. But when the rate reverted in January to 17.5 per cent from Alistair Darling’s temporary stimulus of 15 per cent, the impact on shoppers was ‘largely lost in a blizzard of promotions and discounts’, according to British Retail Consortium economist Richard Lim. It’s hard to tell how much the VAT rise contributed to dismal January retail sales, also hit by real blizzards, or to an uptick in inflation: the BRC points out that some VAT-able items such as adult clothing are actually cheaper than they were a year ago. A post-election rate hike would be absorbed by retailers and obscured by economic circumstances in a similar way, and a standard rate of 20 per cent would merely bring us into line with the EU average — while probably not being high enough to provoke a bonanza of black- economy VAT-dodging. So it’s still likely to rake in £11 billion-plus that would not have to be raised or saved in other ways.
A recent Institute of Directors policy paper by Richard Baron and Corin Taylor, who are always worth listening to, proposes: ‘In line with accepted economic theory that it is better to tax consumption than to tax production… the VAT rate should be increased to 20 per cent, in order to allow for more substantial and rapid tax reductions elsewhere than would otherwise be possible.’ If we’re barely going to feel it anyway, who am I to argue with that?
Here’s a vote-winner
More important, what can I do to help the Tories be brave enough to say they’re going to raise VAT, instead of pretending until after the election that they’re not? Well, there is (I discover) much more to VAT than its headline rate: there’s an entire multi-storey shopping mall of zero- and reduced-rate items and exemptions. Abolishing the lot, including zero-rating for food, would save £27 billion at a stroke — allowing the possibility of a permanently lower standard rate plus a gain in tax revenues. But it would also provoke riots in the streets, so it’s probably a non-starter. Selective tinkering, on the other hand, could offer an incoming chancellor a smart way to make a bigger VAT take not just palatable but actually popular, particularly as a side dish to Osborne’s ‘people’s bank bonus’ share-sale wheeze. Let me draw his attention to some other stuff that’s zero-rated or exempt: antiques and works of art; garages and parking spaces; gold investment coins; betting and gaming; private healthcare and education; civil aircraft and helicopters for sale or charter; shipbuilding above 15 tons gross tonnage, presumably including super-yachts; and all travel fares including, of course, first-class ones. I could go on, but I think you’ll spot how neatly my list captures the lifestyle of one particular consumer group — and offers an open goal for Osborne. Drop that hostage to fortune of ‘absolutely no plans’, George, and go for a real vote-winner: ‘Tory VAT changes to punish greedy bankers.’
High-speed competition
Somehow you just knew that ‘cross-party consensus’ on a high-speed rail link from London to Birmingham and beyond was about to shatter when Transport Secretary Lord Adonis allowed the BBC to film him on a train with Hezza and Prezza discussing how marvellous it was all going to be. Adonis’s shadow, Theresa Villiers, says she won’t be party to a ‘cosy deal’ over detailed proposals due to be unveiled in a White Paper next month, while another Tory source puts it more bluntly: ‘We don’t want to lose 10 seats backing a route blindly.’ Given the narrowing of the polls, that’s understandable — but a great pity, both for the admirable Adonis and for the prospect within our lifetimes of fast, civilised travel between major British cities to match what the Europeans have had for two decades. Still, if Adonis’s preferred route is rejected, at least we can have fun designing our own. Trainspotters are already split between Adonis’s plan for a Heathrow spur at Old Oak Common (site of the Great Western Railway’s historic locomotive depot) and the Tories’ apparent preference for driving the new main line straight through the airport. But more exciting is the question of whether it should actually cross the lawn of Tony and Cherie Blair’s stately pavilion at Wotton Underwood in the Chilterns, how much trouble it could cause Speaker Bercow in his Buckingham constituency, and what sort of gentle curve might be required to make it bisect Lord Heseltine’s arboretum at Thenford in Northamptonshire. Readers are invited to send me their route maps: a bottle of fine wine for the one which promises maximum political mischief.
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