Pre budget report - UK

[Annpan]

... once again they go back on the promises to tax gas guzzlers heavily and have yet more wishy washy pledges on home energy saving - which is apparently another word for insulation

[StripyPixieSocks]

Yep, 2p back on fuel permanently which means once again we probably won't be able to visit my parents next year (and I actually had a cry earlier because I miss them)...

I don't belong to any party over any of the others they're all as bad but given Mr Brown wasn't voted in and seems to forget about calling an election any time soon it's all becoming a complete farce!

[pumpy]

What bothers me about the cut in V.A.T., is, how much will it cost us in the long-term. A rise in N.I. contributions,perhaps? EventuallyV.A.T. will go back up, but what to?------ 18% maybe. We have never been given a tax-cut,by any government, without being worse off in the long run.

[Annpan]

I think than the plan is for VAT to go up to 17.5% again in a few months but I do remember their being a big problem with us having a VAT much lower than europe, and if we ever plan to enter the single currency (which is another debate altogether) we have to put VAT up to... is it 19.5%??? (I could have this all wrong) So VAT might fluctuate for the next few years...

But as you say, yes we are going to have to pay for it sooner or later.

[Greenbeast]

it seems, according to the BBC, that the government were actually planning a rise to 18.5% just a week ago
http://news.bbc.co.uk/1/hi/uk_politics/7749195.stm

Which adds fuel to the idea of it going back above 17.5% in 13 months time

[Annpan]

... but isn't it funny that one minute the torries are saying a 2.5% decrease isn't going to do anything, the next minute they are complaining of the same tax rumored to be going up by 1%.... bloody politicians.

[Thomzo]

The change in VAT rate is going to cost businesses a fortune. All their computer systems will have to be changed to cope with the calculation and all their price lists, websites etc will have to be changed. The cost will be felt most by small businesses. The government really hasn't thought this through. If the major retailers are struggling to sell goods with 20% discounts, what point is a 2.5% reduction? The only benefits will be for banks, other financial services companies and charities who can't recover the VAT on their costs.

Did you also notice that alcohol duties will be put up to compensate?

Tax is going up to compensate. NI is going to be increased in the future.

Zoe

[Flo]

Nope the government has not thought the VAT reduction through.

All stock on the shelves will have been bought at the present rate of 17.5% VAT and that is what they will have to declare on their VAT returns - so logically it can't be sold on with the reduced VAT unless the seller is prepared to take a 2.5% reduction in margins. I doubt if businesses can afford to do this at present.

The other side of the coin is that road transport has just seen a rise in costs. The price of fuel will see a drop in the VAT part of the bill which the firms can claim on their VAT returns. However the fuel duty has risen by 2.5% to compensate the government for the loss of income. Now fuel duty is a tax that has to be paid like income tax and is not refundable. Therefore the road haulage industry has just suffered a rise in its tax take which it will want to pass on to its customers. These customers will be you and me when things are delivered to our door or the shops in which we make purchases. I wonder if we shall be told that this 2.5% has been taken up in the cost of transport so we shan't see it in a price cut.

When the VAT rate rises again in January 2010 the shops will need to have money to pay for this change. So don't expect anything in the January sales then as the 2.5% will be needed against the restocking of the shelves.

[Thomzo]

Good point Flo. I hadn't followed the fuel cost through. I bet that doesn't back down when the VAT rate goes back up.

Zoe

[pumpy]

Just a thought, .......... but when the cut in V.A.T. was announced, did the M.D. of "Poundland" think, "oh b*****ks.

[Flo]

Nope - he thought I'll keep the money and look after my margins just like a good few other stores (Debenhams seems to be another one).

[pumpy]

Just like the rest of 'em, no doubt.

[Thomzo]

To be honest I don't really blame them. The cost of changing all the systems and prices, websites, catalogues etc probably outweighs the potential tiny saving on margin.

Zoe

[gdb]

The VAT cut is potentially very effective but it has been widely misconstrued.

The thinking is that a business will not pass on the whole cut. Any business thereby makes an increase in profit. This should make it easier for businesses to stay afloat and, hopefully, make less people redundant and so, the theory goes, shorten the recession....

Of course this has never been publicly stated - Publicly the government have to urge businesses to pass 'the whole cut on'. Privately they know - and hope - that that doesn't happen.