Wednesday, November 26, 2008

VAT Cuts Favour the Rich More than the Poor

Darling has carried on the trend of being Dooh Nibor a reverse Robin Hood that his predecessor had at the Treasury. Darling had made much that the poorest pay a greater percent of their income in VAT that the wealthiest.

While this is true a bigger proportion of that is taken up by the VAT on fuel which at the 7.5% rate is already under the 15% VAT level, giving no benefit. An even greater proportion of their income also goes on zero rated necessities such as food again giving a negligible effect. The Financial Times is reporting that Robert Chote of the Institute of Fiscal Studies is pointing out that low-income households will not benefit so much from the VAT cuts if they are considered as a proportion of spending.

Yet again Labour are stealthily giving greater tax breaks to the rich than to the poor. Indeed many of the poorest households would have been better off with an income tax cut rather than a VAT cut as this would have given them cash in their pockets, which they could then of used to buy more of their necessities rather than getting a bonus on many of the luxury items that many have already have to cut back on buying due to the credit squeeze.


Kevin Anthoney said...

Can't see this VAT reduction having much effect, because nobody who sells something for £9.99 is going to start charging £9.78 for it. Supermarkets sell things at all sorts of odd prices, of course, but most of what they sell is food which is zero rated.

If your product costs £470, you've got no excuses!

James Schneider said...

Well, the very poorest don't benefit but VAT is a regressive tax, so it hits those on lower incomes more than higher ones.


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