by Sally Bercow
There was certainly no age-of-austerity angst or belt-tightening blues in evidence at the big blue and yellow box in Wembley earlier this week. Ikea was rammed – not just the downstairs marketplace with its Xmas decorations, tealights and festive bits and bobs – but the entire store. Consumer confidence may be falling (the Nationwide index now sits at its lowest level since March 2009) but there were more people sprawling on Klippan sofas, bustling by Billy bookcases, bouncing on Sultan mattresses and measuring up Faktum kitchens than you could shake a stick at.
Now, of course, I appreciate that Ikea is almost always busy, not to mention nightmarishly stressful (all couples argue in Ikea right)? Nonetheless, the member of staff I (eventually) found agreed that there were even more shoppers than usual. More interestingly, he divulged (after only one leading question and the teeniest amount of prompting) a theory as to why: namely, that people are enjoying one last hurrah; a final spending splurge before the VAT increase hits in January.
What is more, this is borne out across the high street: although John Lewis last week reported a booming 6.8 per cent increase in sales on the same time last year, their MD, Andy Street, observed: “The imminent VAT increase is a major issue. We are seeing customers already talking to us about bringing forward big home purchases, such as carpets and kitchens, before the VAT increase and who can blame them frankly”.
Recent predictions from the office for budgetary responsibility suggest that retailers are right to be concerned. According to the OBR, increasing VAT by 2.5 per cent will shave 0.3 per cent off GDP in 2011/12. The centre for retail research has found that the VAT hike will cost the average household £425 a year – which, inevitably, will impact on consumer spending and thereby stoke the number of closing-down sales on the high street, not to mention the queues down the local Jobcentre Plus. But it’s not just retail jobs that will be threatened, increasing VAT will feed directly through to inflation, bringing a real possibility of a rise in interest rates – and so bigger mortgage bills for consumers and higher borrowing costs for businesses.
More iniquitously, not only will the VAT increase delay the economic recovery and put jobs at risk, but it is disproportionately unfair on millions of poor people, pensioners and families. As VAT is the only tax everyone has to pay, it hits a bartender’s disposable income much harder than a barrister’s. Indeed, the poorest fifth of households spend twice as much of their income on VAT than do the richest fifth.
So not only is it economic lunacy to increase it (particularly against a backdrop of overly-draconian public spending cuts), but it is morally wrong to boot. Yet, while the poor are set to bear the brunt of the Tory-Lib Dem government’s economic policies, George Osborne still has the arrogance and audacity to persist in peddling the “we’re all in this together” fiction.
Of course, if we really were all in this together, the government would steer clear of the most regressive option for raising tax. After all, though they are disinclined to admit it, there are plenty of other, more progressive, tax-raising options available in a deficit reduction armoury. But given that David Cameron and George Osborne seem to find VAT rather irresistible, why not satiate their desire by fiddling merely with its scope, rather than its rate?
Why is it that private education and private healthcare are exempt from VAT? How come, if you spend your money on antiques, a parking space, a stash of gold coins, a helicopter or a private jet you don’t have to pay VAT? How are we all in this together when the man in the IKEA queue pays VAT on his posters while the investment banker gets his oil paintings VAT free? How can it be fair that such preserves of the rich are VAT exempt?
The VAT increase kicks in on 4 January, so there’s still time for David Cameron and George Osborne to think again and execute a U-turn. Ideally, they will scrap the VAT rise altogether; failure to do so runs the risk of a double-dip recession and, at best, a weak and wobbly recovery. Nonetheless, should the temptation to tinker prove too difficult to resist, then they might care to look at widening the VAT net. At least then the rich will get to be (marginally) more in it together with everybody else. Sadly, of course, they are unlikely to do either of these things. Politicians rarely change their minds – oh, unless they’re Liberal Democrats.
Sally Bercow is a Labour activist and a freelance writer and broadcaster.
Tags: IKEA, Sally Bercow, VAT, VAT bombshell
As a proportion of expenditure, VAT is (albeit slightly) progressive because of the differing rates applied to different types of product http://www.ifs.org.uk/budgets/gb2009/09chap10.pdf
The VAT rise will probably raise £13bn. What would you rather do? Raise income tax (on who?)? Raise national insurance (on who?). Continue Labour’s policy of keeping those earning the least in income tax? Raise council taxes? Bring in higher unilateral, industry-specific levies and taxes on the industry this country most relies on for jobs and growth?
>> “Why is it that private education and private healthcare are exempt from VAT?”
Because state education funding and state healthcare is paid for (in the large part) by taxes we all contribute generate. People who opt in for private education or healthcare don’t get a tax break, despite using a smaller proportion of state provision. We have no opt-out for these taxes.
I think it would be wholly unfair to double-tax people just for making a choice. By making this choice, they are voluntarily contributing more tax than they need to. Would you want to disincentivise this… for the sole purpose of claiming a scalp?
>> “why not satiate their desire by fiddling merely with its scope, rather than its rate?”
How much would this cost to administer and enforce? When exactly does second hand furniture become an antiquity?
All you’re doing is drawing on silly anecdotes and stereotypes to back up your baseless arguments and ideas. Worse, you’re presenting all of this guff as absolutes and facts. I’d be embarrassed.
Why do you think antiques are the preserves of the rich? I’ll fight anecdote with anecdote: I can a considerable amount less on kitting out my flat with ‘antique’ and market furniture than buying brand new Ikea stuff.
Lastly, I think you’re committing the grave error that so many ‘activists’ make by considering the effects of policies individually and in a sandbox. That is not the way to evaluate a tax system made up of multiple parts and if-buts.
* I’m all for debate and opinions, but not for the spreading of misinformation and dressing up of anecdotes and prejudices as facts (“
We’re all in this together … are we? The “all” bit, of course, excludes the super rich who can employ an army of accountants to reduce tax liability. And how about the mobile phone company that was reportedly “let off” several billions (yes BILLIONS) of back tax recently by the “tax man”?
As for the case of VAT, Sally Bercow makes a good point. Personally, I do not mind “helping out” with the small rise in VAT in January. But when I see what is exempt from VAT which is not a necessity (like food – except “junk food”), I do get a bit mad.
@Andy;
Hot take-away food is standard rate VAT. Cold take-away food is zero rated. Sweets and sundries are also standard rate, if I recall correctly.
What ‘junk food’ are you talking about?
@Jamie Edwards
“The VAT rise will probably raise £13bn. What would you rather do? Raise income tax (on who?)? Raise national insurance (on who?)”
The VAT increase is paying for the corporation tax cut, don’t cut it and you wouldn’t need to raise VAT by so much (or at all?).
“Continue Labour’s policy of keeping those earning the least in income tax?”
Those earning the least didn’t pay income tax they were already below the threshold, 800,000 people were taken out of income by the £1000 increase but most of the money “lost” by increasing the threshold went to middle income earners. That was/is the glaring problem with the libdems policy of large personal allowance, of the £18bn needed to fund the full personal allowance of £10,000 only £1bn went on taking low income earners out of tax.
“Raise council taxes?”
Introduce levy on properties over £1million. Increase CGT inline with income tax bands. Levy a £400 million admin fee for allowing Philip Green to leave the country, okay might be a bit hard to implement, but at least levy air passenger duty on his and other private jets.
“Bring in higher unilateral, industry-specific levies and taxes on the industry this country most relies on for jobs and growth?”
The bankers? We need to get away from our dependence on financial services so an increase levy and bonus tax should be brought in, as Ed has proposed this money should be used on infrastructure spending to stimulate the economy.
“All you’re doing is drawing on silly anecdotes and stereotypes to back up your baseless arguments and ideas. Worse, you’re presenting all of this guff as absolutes and facts. I’d be embarrassed.”
Yawn, don’t get snotty.
“Lastly, I think you’re committing the grave error that so many ‘activists’ make by considering the effects of policies individually and in a sandbox. That is not the way to evaluate a tax system made up of multiple parts and if-buts.”
Ermmmm that is what your doing. The VAT increase isn’t necessary unless you want to cut corp tax and income tax mainly for middle income earners.
@Andy
“But when I see what is exempt from VAT which is not a necessity (like food – except “junk food”), I do get a bit mad.”
Ermmmm processed (e.g. crisps, ready meals, chocolate, etc) is standard rate VAT. Its basic food (e.g. bread, vegetables) which is zero rate but in obviously you have to cook basic food which means you need gas or electric which is reduced rate. However, the poorest on pre-pay meters they have to pay the most for energy.
It is absolutely wrong of you to suggest the rise in VAT will contribute towards a risk of us entering a double dip recession. Making things up, is simply not on. Why do you bother?
‘Paul D’ you are a strange person.