I believe that you will find George Osborne's Machinations masquerading as a budget the other day were commensurate with his education as a Modern Historian in terms of invalidity for the matter at hand!
We note the matter of vat loomed large (clearly nothing like large enough to have the very slightest effect on even the annual interest on the obscene borrowings of 13 unlucky years of Labour economic illiteracy!). It was believed that vat loomed large because it was a tax levied disproportionately upon the poorest who spend the largest % of their income at retail!
There were those who foolishly believed that Cameron would keep his promise and not permit the undemocratic EU to increase its power over Britain but few will be surprised to find he lied!
The rise to 20% was imposed upon Britain without democratic vote by the EU central Government of these United Kingdoms - you remember 'In the EU but not ruled by the EU' well actually = In the EU and directly ruled by the EU!
The new 20% minimum rate was an EU directive that had to be in place by the end of the months outlining when it would be implemented and enforceable by the EU!
You will enjoy the next section which is largely stolen (with permission) from Simon Muir!
The method (value added) is an EU imposition. Prior to that the UK had
no attempt at universal fiscal control, only taxation designed to
intervene in markets or raise specific revenues. Purchase tax was paid
on 'luxury' items and by the consumer, not the wholesaler. It is the EU
intent to VAT-rate _EVERYTHING_ (air, if they could, and most certainly
drinking water!), to create a universal system.
The original intent was hypothecation to the EU, but Thatcher stopped it
when she determined the British budgetary contribution, including the
'opt out'. AFAIK, there is no hypothecation to the EU at all at the
moment. Our 'contribution' (read tribute or extortion) comes from
central coffers independently.
There are fundamental rules imposed by the EU. 'Exempt' and 'Zero Rated'
is not synonymous:
Exempt items are not taxed. They are a hangover from the days when we
had a fair tax system, and the EU's declared intent is to eliminate
"Zero rated" items are 'taxable supplies' and must be accounted for in
VAT returns (IIRC - I don't do any, although I am VAT registered). Once
something moves from Exempt to Zero Rated, it cannot ever be made Exempt
again (EU law). Zero Rated means 'we don't yet, but we will'.
The basic rate is agreed with the EU and cannot be reduced without the
EU's permission. It does vary between countries (most are higher). For
example, when Darling dropped the rate to 15% he had to get permission
(disgusting, isn't it?). That's also why it had to go back to 17.5%
afterwards. We no longer have a higher rate band, but if we did, it's
the only aspect over which a chancellor might have discretion.
Lower rates, such as 'insurance premium tax' and energy taxes, are VAT-
in-disguise. The intent is to ratchet them up to standard rate at which
point (once we're used to it), they will simply be treated as normal
VAT. These categories too will never return to being not taxed (at the
consumer transaction), unless we leave the EU.
Although invented in the EU, VAT is used elsewhere in the world.
Bureaucracies love it, as it places the administrative burden mainly on
small businesses, thus (a) keeping them under the thumb, and (b)
concealing the real cost to the economy of such an inefficient tax.
I did a web page (attached below) giving a worked example of the
stupidity of it all. The best simple example however is paper bags: they
have a similar chain to the fictional woodscrews in the page, with this
unbelievable twist: the retailer gives them away, claims back 100% of
the VAT as 'input tax', and the exchequer gets nothing at all (net),
although there are probably at least 12 VAT transactions accounted for
in the manufacturing/distribution chain. We all pay for the
administration though, as a hidden part of the cost of the things we
There is also plenty of research that VAT falls disproportionately on
the poorest in society, because of the amount they must spend at retail.
I am not alone in thinking this kind of nonsense is wholly
unsustainable. It is the British equivalent of the 'Shoe Shop Event
Horizon' (kudos to Douglas Adams).
PS: Why aren't your 'public servants' in Brussels (UKIP MEPs) publishing
this on a web site somewhere. Don't bother--I know the answer to that
one - self-serving deceivers sums it up well!
Worked example of the VAT ladder
The table below illustrates how VAT is not paid by the supply chain, but by the consumer (who can't recover it), also the vast sums swirling around the economy, as the tax is first levied, then paid to the exchequer, then reclaimed, and paid back to suppliers.
50% VAT on Woodscrews!
To simplify matters, our fictional Prudence has decided a 50% rate is fair (but only on woodscrews). It hasn't caused rioting in the streets yet, as consumers are
(a) used to prices in the DIY warehouses by now, and
(b) well used to governments s******g them over:
RECOVERED PRICE INVOICE VAT PAID
INPUT VAT INCL VAT PER STAGE
Iron Foundry 0 100 150 50
Screw Mfg. 50 200 300 100
Distributor 100 400 600 200
Wholesaler 200 800 1200 400
Retailer 400 1600 2400 800
--- ---- ---- ----
Column totals: 750 3100 4650 1550
NET VAT PAID TO EXCHEQUER: 800
The costs of this nonsense...
The above example hides 16 VAT account transactions, some potentially involving bank charges, and certainly involving cost to the accounting units. Auditing must be considered, and the VAT inspections, etc.
It all begs the question: Is this a sensible way to tax anything or anyone?