Well, the VAT's out of the bag...

Yesterday saw the confirmation of the worst-kept secret in Westminster since Gordon Brown told the nation that he would be going to the country on 6th May; the main rate of VAT will rise to 20% from 4th January 2011.  The BBC have already been doing their duty to their Lords and Masters by presenting the point of view that everyone is outraged by the decision; but I happen to disagree with them.

Let me make this clear from the start: I support George Osborne's plan to raise VAT to 20%.

As the outgoing Chief Secretary to the Treasury said: "There is no money".  He was quite right, and it is only fair that the money that is so desperately needed be raised through a mixture of spending cuts and taxation; we are all in this together.  At the end of the day we will all benefit when the situation is resolved, so we should all chip in now to bring about that resolution even sooner.


To me, a rise in VAT was always going to be the main choice.  It brings in big money (a 2.5% increase will bring in an extra £13bn a year), is paid by everyone, has the biggest effect on those who buy 'big-ticket' items and, most importantly, offers people a choice as to whether they pay it or not.


Please allow me to elucidate on the two last points I make in the previous paragraph:


It has the biggest effect on those who buy 'big-ticket' items
Labour have argued that the VAT increase will affect the poor the most.  How they have arrived at this conclusion is beyond me.  An increase of 2.5% will add 2.5p to the cost of an item that currently costs £1, whereas an item that currently costs £1,000 will cost £1,025 in January 2011.


How many poor people do you know, who regularly buy items costing hundreds of pounds?

People choose whether or not they pay VAT
VAT is, effectively, a tax on luxuries.  This argument is strengthened by the fact that there is a 0% rate of VAT for essentials such as food and children's clothing.  Simply put, the rise in VAT will not effect the cost of a basket of shopping.


If people are so concerned about having to pay an extra 2.5p in the pound, then they should be considering whether they really need that plasma-screen TV or the latest computer game.

The outrage regarding the increase in the rate of VAT is merely a hangover from the financial attitudes that have become so prevalent in the UK as a result of years of recklessness: "I'll happily take advantage of the boom-times, but why should I have to tighten my belt when the money's no longer there?"


And the answer to the critics really is that simple: if you don't want to pay more, then just tighten your belt and buy fewer luxuries.

It's not as if the change is going to be massively noticeable anyway; we hardly noticed when the rate went down to 15% last year, and we didn't even notice when it went back up to 17.5%.  I reckon we won't even notice it going up to 20% next January... mark my words.

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P.S.
It's not even as if retailers will be forced to pass the tax rise on to the consumer anyway!