The reduction in VAT from 17.5% to 15% quickly condemned and rightly so, by Vince Cable, as expensive and ineffective is one of this government’s more costly errors. The one year only cut will cost us the incredible sum of £12.5 billion pounds and has done little to stimulate consumer spending, simply because despite the enormous cost it still seems so meaningless at the till.
Indeed, it may will come with a sting in the tail, as when it comes to an end and VAT goes back to 17.5% it will come with a sharp inflationary jolt which may well trim back some of those ‘green shoots’ that Labour will being telling us about this winter.
The French, as usual, have shown a little bit more imagination. From July 1st, the VAT on meals (not alcoholic beverages though) in restaurants has been cut from 19.6% to 5.5%. This has been translated in to a reduction of 15% on a typical ‘Menu’, my favourite bistro in Paris having reduced their menu from 19 to 16.50 euros. In return the restaurant trade had guaranteed to create 40,000 more jobs to add to the 600,000 they already provide, including 20,000 new apprenticeships.
In three Paris restaurants I ate at last week, the owners all said the effect had been positive and immediate. One told me that his business for July had been 25% up on the previous year as a lot of confidence had been restored and his customers given both an excuse and a justification for eating out more often!
The cost? 2.3 billion euros or 2 billion pounds in a full year. Less than a sixth of the cost of Uncle Gordon’s VAT reduction. Once again, the French have shown a little bit more imagination and got a lot more value for the French taxpayer.
I hope our Treasury Team can come up with some similarly imaginative schemes for our manifesto.
* Martin Land is a Cambridgeshire Lib Dem activist and campaigner and blogs at New Model Army.
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4 Comments
“The one year only cut will cost us the incredible sum of £12.5 billion pounds” – assuming the recession did nothing to depress ‘normal’ spending of course, which is somewhat unlikely. Arguably, consumers have SAVED £12.5 billion in transactional taxes, benefitting the poor most of all. Labour’s cut has been far too feeble to have had any impact on the economy. Much better to have reduced employers’ NICs, saved thousands of jobs and maintained consumer spending accordingly. That said, I strongly believe we should now be campaigning to leave the rate at 15%, not putting it back up again.
Given the highly regressive nature of VAT, the most imaginitive thing our Treasury Team could do is to work towards reducing all VAT to 5%, replacing it with progressive taxes on privilege and unearned wealth (i.e. economic rent), and simultaneously pushing for the EU to axe VAT altogether, switching to resource based revenue streams instead – emissions permit auctions, airport slot auctions, spectrum auctions etc etc.
€ 16.50 is expensive for muesli.
Actually John, I had a very good Pate followed by a Confit de Canard and an excellent, home-made Tarte Tatin.
Andrew – The UK cannot unilaterally reduce the rate of VAT to 5% because the minimum permitted rate within the EU is 15%. There are various derogations on certain product or service categories (such as the UK’s zero-rating of children’s clothes – or indeed the French rate for restaurant meals) but I cannot imagine the other EU members agreeing to a blanket reduction for one member state, because it would provide an unfair trade advantage.