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VAT rise

Im just thinking, the cost of the materials to make the products will also rise as the result of the VAT, then this rise in costs plus the rise in VAT on the products themselves must make the prices increase by more than just 2.5%, is that correct ?

Also, George Osborne said the rise in VAT will help reduce unemployment, I don't understand how ?
Reply 1
Avatar for Howard
Howard
5
Original post by fineas
Im just thinking, the cost of the materials to make the products will also rise as the result of the VAT, then this rise in costs plus the rise in VAT on the products themselves must make the prices increase by more than just 2.5%, is that correct ?

Also, George Osborne said the rise in VAT will help reduce unemployment, I don't understand how ?


Well, it doesn't work that way because most companies in the supply chain are VAT registered so they claim the VAT back. It's only the end user that gets clobbered with the VAT.
Reply 2
Avatar for Huskaris
Huskaris
16
VAT is only paid at the point of sale of the finished product. And although VAT has increased by 2.5% it does not put the price up 2.5%

Eg. You buy something (excluding VAT) for £100. If you include old 17.5% VAT it is £117.50, it is now £120, which means prices are in effect going up by 2.13%.

Sorry to be a pedant. Haha
Reply 3
Avatar for Acerbic
Acerbic
14
VAT isn't charged on everything (food, transport, rent, etc. are exempt), so no, it is not correct.
.
I think what George Osborne meant to say was that the rise in VAT will help reduce employment. Mincing words is one right-wingers are well known for.
I assume the unemployment remark was referring to the effect that taking firm action over the deficit would have on business confidence, hence potentially leading to more jobs being created.
Companys don't go to the high street to buy the materials to make their products
Reply 6
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i.am.lost
18
I wonder whether an increase in Income Tax would have been better than a VAT rise.
Reply 7
Avatar for L i b
L i b
19
Original post by i.am.lost
I wonder whether an increase in Income Tax would have been better than a VAT rise.


Apparently it's a more progressive form of taxation, since normal income isn't a particularly good reflection of how much cash someone has. I'm not sure I fully buy that, but, well, it's an argument, eh?
Reply 8
Avatar for Acerbic
Acerbic
14
Original post by L i b
Apparently it's a more progressive form of taxation, since normal income isn't a particularly good reflection of how much cash someone has. I'm not sure I fully buy that, but, well, it's an argument, eh?

There was something along those lines in an IFS report recently. If you take expenditure, rather than income (which doesn't include money earned from owning shares, etc.), as the gauge for wealth, then VAT is actually a progressive tax. VAT is only charged on certain goods, after all, and those which are exempt tend to be more necessary items, which would make up a higher proportion of poor people's expenditure than that of richer folk.
I have no idea. But having to pay an extra 10p for my Bacon roll at McDonalds this morning really hurt.

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