On taxpayers being fooled again, 2% VAT reduction? In this sale season, I see it like a helping hand for retail businesses

So, as of December 1 darling Darling told us that the VAT rate in the United Kingdom would go down a massive 2% from 17.5% to 15.0% (-14.28%)..

At first signs of Germany getting into trouble, they rose their VAT rate last January 1, 2007 from 16% to 19% (+18.75%). At the time, everybody thought the Germans were nuts, but almost 24 months after they started paying more in Value Added Tax, they even felt like telling off the British chancellor when the pre-budget report came out.

At first, like any other sensible thinking person, I though that their obsession with consumer spending was what got us into this financial mess in the first place, and focusing in that particular line of work wouldn’t help. But now, full Christmas sale on in the High Street, I started to wonder… so what with the VAT reduction? What’s that? 2.1p down from every pound. Just that. I, like many other, thought the idea of the VAT reduction to increase consumer spending as a bit ridiculous. How could 2p make a difference? And then, over the Christmas shopping, it stroke me.

Before VAT reduction: £100.00
After VAT reduction: £97.87
Sale price: £70.00, £60.00. £30.00, you name it, it depends on how desperate the retailer is.
New collection: £100.00

The good news is that everything has happened so quickly, that all prices are living together at the shelves, and I just realised, that if all stores signed up and published the VAT reduction, many more are leaving their prices at pre-pre-budget prices.

Yep, now I see what No 11 was really cooking all along, not a 2% reduction in VAT to increase consumption (even though it was sold like that to the general public), but a wild card for those retailers who would like to keep their November prices, but at 15% VAT rate, hence effectively bumping up turnover 2% to the expense of the general customer. Did you follow me?

If it walks like a duck and quacks like a duck it is a duck. It is just that this time, the duck is barking and you need the help of a professional translator. Again, businesses are forfeiting 1 month of pricing madness in exchange of 12 months of a 2.1% increase of their bottom line (17.5% rate is due to be back in place at the end of 2009… we shall see though). [03/01/2009 David Cameron doesn’t seem to get it though]

And the amount of VAT tax income HM Custom’s and Excise is waiving? Back in corporate taxes my dear, as long as there are companies that make profits in 2009, or don’t go into administration, that is.

We are just being treated as we are, a childish and ignorant bunch. I bet you won’t see many £97.87 prices not finishing in 0, 5 or 9 from the end of the sale season. And companies with no retail operations? Well, too bad I guess.



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