Rishi Sunak, Chancellor of the British Exchequer, is going to cut the VAT rate. A similar move had already been proposed a decade ago by one of his predecessors, Alistair Darling of the Labor Party, for which he was ridiculed mercilessly. Sunak, the representative of the Conservative Party, does not seem to have a single trump card up his sleeve against the backdrop of the current pandemic, which Labor has been trying to beat.
The source of information was a private briefing. Rishi Sunak is going to reduce VAT (rate from 20% to 17%) – in his opinion this is a good way to get people to spend money more actively. Conceived as a way to boost capital flow to shake up an economy devastated by the Covid pandemic. The UK has not officially announced this – at the time the information appeared, there was not a specific plan of action, but an outline of the plan.
Everyone knows the unwritten rule: the VAT registration rate should be convenient for calculations in your head. When offering a service or product, the seller must instantly, without any calculator, tell the consumer the amount of tax deductions (Great Britain and other countries). You can quickly calculate such a percentage at a VAT rate of 12.5%, 15%, 17.5% or 20% (using quarters of 10% as a step of 2.5%), but calculating 17% is an arithmetic task that is an order of magnitude more difficult . This was an unofficial suggestion of a future reform, and interesting conclusions could be drawn from the existing outline of the plan, which included the tax rate. Great Britain became an example – other countries began to take it “as a basis”.
On the short memory of society
When did the UK introduce VAT? The value added tax rate was first introduced in 1973 when the United Kingdom joined the European Union. Prior to this, local tax authorities levied a tax on the purchase, it looked more progressive and fair – the deductions were the higher, the more expensive and elite the product was. The opacity of this remained, but the burden fell to a greater extent on the shoulders of the rich, which was right. The UK introduced VAT – everyone got equal rights. This is not fair to the poor – they found themselves with even more limited ability to pay than before. VAT offered certain relief for certain mass categories of goods, such as food or children’s shoes – a drop in the bucket compared to the fairness provided by the purchase tax.
After some time, the European Union came to the conclusion that the VAT rate would be 15%, and the UK, as its member, had to adhere to a common policy. Note that the purchase tax, which was in effect before the introduction of VAT, was fixed at 10% – for the poor, such an innovation was a blow. This may sober up a bit those who still miss EU membership and see Brexit as one huge mistake. A united Europe cannot be considered an ideal – although it offered certain advantages, it had certain disadvantages.
The VAT rate of 15% was fixed by European legislation and allowed that in a specific/difficult situation, one state could revise the lower value of taxation downwards. The UK was shocked during the 2008 crisis, but Alistair Darling, as Chancellor of the Exchequer (UK), did not claim exemptions for his country – he wanted to reduce VAT from the current 17.5% to the allowed 15%. For his idea, the politician, who wanted to stimulate the desire of the British to spend by helping businesses, was subjected to derogatory criticism – his own citizens did not understand the person who proposed to further reduce the treasury revenues. For society, the action looked like an act of an amateur who did not know what problems the UK was facing.
Already in 2009, the Institute for Financial Studies (UK) recognized that Alistair Darling’s decision to reduce VAT was thoughtful and sensible. It is not so much the changes in tax policy that require attention, but the reactions to them. Experts recognized the move as reasonable, none of the media or other critics of such a move admitted out loud that they were wrong. For the last decade, this is generally the norm: no policy pursued has been as destructive as criticism against it. Everyone has “forgotten” how they were categorically against reducing the VAT – because it is easier that way. These same people today are ready to erect a monument to Sunak as a man who acts decisively and courageously – this tactic became believed thanks to the success of Darling, the UK received a functioning economy. Public commentators, little able to step on the throat of their own song,
In the history of the VAT in the environment of the Labor Party, others disgraced much more than Darling – Shadow Chancellor Alan Johnson, who did not know that there was no rate on food. Whether he realized this at least later is irrelevant – his ignorance brought Ed Balls to the post of Shadow Chancellor. In 2011, the UK expected more from him, at least following the example of the same Darling. The result is that, due to the inability of society to admit its own mistakes, we have become accustomed in the last ten years to the fact that the minister may not know which side of England France is located. Against the background of public indifference to such moments (or interest at the level of jokes), indifference, ignorance have ceased to be a vice for top-level politicians, because politicians of the old school, who were unfairly condemned,
Policies are different, the meaning is one
At first, the Labor chancellors did not tighten the screws – in the early years of its existence, the British VAT remained at a fairly low level. Further, the UK came to the conclusion that it is normal to tax the rich hard. Denis Healy raised the luxury rate to 25%. The Conservatives who succeeded Labor considered it necessary to “harmonize” the difference in VAT rates, and this was the triumph of the policy of corralling into a common framework: who would protest against an honest approach when everyone pays the same percentage? True, as a result, it turned out that ordinary people began to pay more – at the rates that were originally invented for those who can afford it (the rate is the same for everyone).
Great Britain (2011) began to charge a rate of 20%, and this is a record – the first time the rate has reached such a value. No one has particularly criticized this measure – the only non-transparent tax that is usually not criticized. The UK receives about a fifth of its income from VAT, therefore, in society, this tax is perceived as a normal duty of every law-abiding citizen (the tax rate is one of the main sources of replenishment of the country’s budget). No one opposes the VAT and does not require it to be reduced, and yet the conservative politician himself proposes to do this. It turns out that in the game with the coronavirus he did not have any trump cards left, except for those that his Labor predecessor used in his time? Here it turns out
Why cut the VAT rate in a crisis?
This is not obvious to everyone, but a potentially effective move to stimulate the economy in a difficult situation. At first, the state receives less revenue from the treasury, but citizens, seeing the benefits in innovation, begin to spend money more actively, stimulating production and the provision of services, which ultimately allows you to restart the economy.