Hamish Champ: The VAT cut was a waste of time. Discuss
23 November, 2009
"Hardly anyone notices a VAT reduction of 2.5 per cent. It does bugger all to affect most consumer’s spending decisions, unless they’re looking to save a couple of thou’ on a top-of-the-range motor"
It beats me why Chancellor of the Exchequer Alistair Darling thought that knocking 2.5 percentage points off the VAT rate would have us consumers hurling ourselves back onto the UK High Street like demented lemmings.
The price of a 42 inch plasma screen all-singing all-dancing HD-friendly TV went down by about what a little girl in India makes to produce a dozen pairs of top-of-the-range pairs of trainers, and let’s face it, who was ever going to get excited about that?
And with this supposedly munificent if redundant gesture about to run its course, licensees are now bracing themselves for the moment when, on January 1, they will have to rejig all their menus, whack up their prices to comply with the new – or should that be ‘restored’ – rate of VAT, namely the 17.5 per cent one, and prepare to deal with a customer base that will bemoan another round of price increases for their favourite tipple.
Now there might be a few among you, dear readers, who will argue that putting up the price of a pint by a couple of pence will not matter very much. That where a pint of a Dutch imported lager already costs well in excess of a heart-stopping £3.60 in a pub in Central London the restoration to the full rate of VAT won’t exactly be an earth-shattering event.
But when the price of a pint is less than two thirds that rather overblown figure, what then?
Movements in VAT are subtle phenomena to observe. As someone pointed out to me the other day, hardly anyone notices a cut of 2.5 per cent. But put the rate up a couple of points by restoring it to an old rate, as will be the case in less than six weeks’ time, and people get jittery.
It might make little difference to the average consumer in terms of the amount of cash he or she shells out for various goods. But it still feels like an empty gesture has been found out, and the perpetrators are ‘fessing up.
Perception is a powerful driver in many walks of life. The current perception is that taxes are heading inexorably northwards. Whether 2.5 percentage points added back on to the price of a pint actually makes pub-goers less likely to buy the same numbers as when the rate was temporarily lower is debatable.
Similarly it is unclear if the scale of suffering likely to be experienced by the nation’s pubs will be any more than that which has already been seen this year.
The fact is for UK pubs the VAT cut last year – which was in effect negated anyway by the duty hike – was ineffectual from the word go.
The return to the 17.5 per cent rate at this stage of the economic ‘recovery’ feels like nothing more than government penny-pinching.
And, lest we forget, we've a Budget to look forward to. What joy...
Readers' comments
Let's face it the VAT cut WAS a waste of time! What was it supposed to achieve? Answer - dupe people into believing yet another tax was acceptable!
It's very easy to belittle the Government's actions on VAT. Knocking the Government of the day is something that has gone on for generations & will continue. However to stand back for a moment & look at the reasons why they lowered the rate to 15%. To me it made a clear statement at a time when everyone (commercialy & domesticaly) were looking for signs. My memory of the time will be a Government who were prepared to be proactive, & prepared to make a difference.
Hmmm.. and of course by balancing the increase in tax against the decrease in vat and keeping prices the same the licensee would not have put the difference into his profits (about 4p per pint) How much would that be on an "average" 200 barrel house? Couple of grand methinks.Ken Nason
So the industry is getting 'jittery' about the forthcoming VAT rise. Come on be honest it's not going to be the final nail in the coffin for any of us out there, It will be a pain for our accountants at the end of the quarter but that's what we pay them for, and 'old Bob' (with apologies to all Bob's out there) will whinge for a week before finding another subject to bore us all to death with. There is as they say only to certainties in life - death & taxes.
Ian, did you not follow what happened last year. The VAT went down but the duty went up. This caused all the wholesale prices to change and that�s why the price lists had to change! It was pointless because it didn�t affect the people who needed it, and those are the ones who can afford only the essentials, and they are already VAT free. Only those who buy luxury items and things of value got any benefit, and then it was not much different, only 2.5%, you can normally negotiate better discount than that. A far better way to help people would have been something like a reduction in NI, or income tax, something that would help all low paid workers and not cost firms so much money in the process. They would have seen it in their wage packets in noticeable lumps, not a few pennies here and there. What is the point in a tax reduction if people don�t notice it?
"There would have been far more efficient and effective ways to spend this money, but" - Such as? "this was just sound byte politics at its worst" - nonsense! it wasn't a sound-bite it was a tax reduction!
Ian - nobody is denying that the reduction (any reduction) puts more into people's pockets - that's a simple truism. What we're saying is that, at only 2.5%, and on a temporary adjustment only, the amount it gives back to people makes absolutely no difference in real terms. This would be true even if it was 2.5% on everything, but it wasn't; a whole swathe of FMCG goods didn't feel any benefit at all (alcohol), many other areas wouldn't feel any benefit if the reduction wasn't passed on (for whatever reasons) and another swathe of regular, daily spend isn't affected anyway (unprepared foodstuffs, etc). There's nothing ridiculous in our attitude if you view it from where it is based, because we're in the industry that was part of the 'con' (IE. hidden duty rise to pay for the VAT decrease); it is that fact that means the reduction will probably cause more hassle than benefit for us, as licensees, when we inevitably have to increase prices in January. Not sure what your 'wholesale' comment is referring to?
"There would have been far more efficient and effective ways to spend this money, but" - Such as? "this was just sound byte politics at its worst" - nonsense! it wasn't a sound-bite it was a tax reduction!
"There would have been far more efficient and effective ways to spend this money, but" - Such as? "this was just sound byte politics at its worst" - nonsense! it wasn't a sound-bite it was a tax reduction!
Marc, SteveW, you're still missing the point. The intention behind the cut was to put money in people's pockets. In this it succeded. In fact it couldn't fail - every household got their £200 whether they liked it or not (and whether they realised it or not!). Also, isn't it rather a ridiculous position to be against tax increases, then criticise a tax reduction?! Lastly, curious to know why you adjusted a wholesale price list? Don't you quote wholesale prices ex-VAT?
Steve W - absolutely right: the regular public didn't realise about the alcohol duty increase; I lost count of how many times I had to explain to customers why my prices hadn't gone down on 1st Dec '08. Most thought I was just increasing my bottom line; some didn't blame me for it, but they didn't realise the truth behind it. It's the same as another thread in these forums where somebody mentioned that the regular public are aware of what the tie is... unfortunately, they're not as informed as some people think they are.
To answer Hamish - yes, it was a stupendous waste of time and money. Anything prohibitively expensive is still prohibitively expensive at a 2.5% reduction (such as a new tv, etc), and anything affordable has a barely perceptible change of price at 2.5%, and most of the affordable 'daily' consumables are free of VAT anyway. Now, if he'd taken VAT off totally for a year, that would have had the desired affect...
Chris - the only problem is that NOBODY realises the duty went up at the same time as the VAT decrease last year, so if prices go up with the VAT increase, we'll just be accused of not reducing them when it went down!
First of all, Ken, Licensees would not have reduced their prices in line with the VAT reduction because the duty went up to compensate, ensuring that we would not benefit by the lower VAT rate. Secondly Ian, it can easily cost billions, each household in the country supposedly not paying the £200 that they otherwise would have paid is 15 million x £200 (approx) and having what equates to just over 50p each per day to spend does not even come close to offsetting the other tax rises that the chancellor imposed during that year. Some of the bigger shops did only put up a notice saying that the VAT would be adjusted at the till, but that was a stop gap measure while they arranged the adjustments. Every wholesale price list of mine needed adjusting, that took me a few hours of admin, and this multiplied by millions of companies at lets say £9 per hour wages, plus having to either print notices, or reprint millions of price labels, that's where the cost comes in. There would have been far more efficient and effective ways to spend this money, but this was just sound byte politics at its worst.
Returning to the higher level of VAT might yet have an unexpected benefit. Using the excuse of a VAT increase many licensees will see this as an opportunity to increase prices to compensate for the many recent increased costs ~ a kind of Trojan Shetland-pony. Small, but convenient to hide things in.
Sorry, where's the irony ?? It's not ironic to compare child labour wages and the VAT cut!!!! They are worlds apart. The 2 aren't comparable. I understand the point that was being made, I just think it should have been made using a more suitable analogy, would I rather be a landlord thats just been given a 2.5% vat reduction or a child labourer in India, i think you know the answer to that.
danny, I read Hamish's point as being ironic rather than flippant. That the theme was about the perception of what will make a difference as opposed to what would make a material and real difference. And as you have pointed out "it certainly hasn't hindered anything", which could be the same as being perceived as not making a material difference; which is what I thought Hamish was talking about!
It was indeed what I was aiming for Frederik, though I fear I may have over-egged it a tad. Hamish
First of all, Ken, Licensees would not have reduced their prices in line with the VAT reduction because the duty went up to compensate, ensuring that we would not benefit by the lower VAT rate. Secondly Ian, it can easily cost billions, each household in the country supposedly not paying the �200 that they otherwise would have paid is 15 million x �200 (approx) and having what equates to just over 50p each per day to spend does not even come close to offsetting the other tax rises that the chancellor imposed during that year. Some of the bigger shops did only put up a notice saying that the VAT would be adjusted at the till, but that was a stop gap measure while they arranged the adjustments. Every wholesale price list of mine needed adjusting, that took me a few hours of admin, and this multiplied by millions of companies at lets say �9 per hour wages, plus having to either print notices, or reprint millions of price labels, that�s where the cost comes in. There would have been far more efficient and effective ways to spend this money, but this was just sound byte politics at its worst.
The usual moanings from an industry that does nothing but moan. The comment about how reducing the cost of a tv by 'the amount an indian girl makes' just about sums up your pathetic views. How you can even come to that comparism shows how selfish & silly you are. Child slavery is a nasty, horrific thing and shouldn't be used in such a flippant way. Most other industries have found the vat cut has helped, it certainly hasn't hindered anything. Pubs don't have a divine right to be busy and just like any other industry the best will stay and the rubbish ones will go. Thats life.
Interesting take on my thoughts Danny. I abhore child exploitation and my point about the cost reduction TV analogy thing was intended to be read ironically. Sorry you found it "pathetic". Pubs don't have a "divine right" to be busy, as you say. I just think the VAT cut was a bit of a con. Hamish Champ
Marc, how can it have both "cost billions" and not worked! - those billions are in the pockets of people and companies, instead of in the government coffers. Some of this may even have found it's way into pubs via (marginally, and probably without them even realising it) increasing peole's spending power. You've obviously missed the whole point of David's expalanation - it's not about changing individual spending decisions, it's about putting more money in peoples' pockets. As for 'hundreds of millions' spent changing prices etc, most places either just stuck up a notice saying "VAT refund at tills" or didn't pass it on (which, before you say it, doesn't mean it 'had no effect' - it had the effect of improving the company's cash flow, which could have kept it in business / kept employess in jobs). PS if you think £200 is not going to make much difference to anybody, please send me yours!
I, like many I suspect, have not passed on price rises in the knowledge that VAT would increase in Januarya nd so will add those price rises on to teh VAT incease to give one price rise rarther than several smaller ones. I am never sure whether it is better to go for one or two price incrreases per year or whether one should be contiually adjusting prices several times a year to reflect the changes in the cost to us.
David Emmery, is that some pseudonym for Gordon Brown? The VAT cut was a huge waste of time and money. It cost the country Billions while many prices did not change by any noticeable amount. It cost businesses hundreds of millions in staff time and reprinting costs to adjust their prices, and then it only made a difference of a few pence here and there, and even then not on the essentials as they don’t have VAT on them anyway. It was just another ill thought out plan by a man with very poor judgement, and intended to create a few headlines and sound bites, so that he could use his phrase "real help" while nobody benefits. £200 at the end of the year is not going to make much difference to anybody. It is the equivalent of a 0.0125% pay rise to somebody on a £16k wage. Hardly earth shattering is it.......
I just wonder how many licnesees actually reduced all of their prices anyway in either compensation of raising of tax or reduction of vat when it changed last year choosing to just keep it as it was but will of course add the 2.5% at the beginning of January. Going by my own observations on licensees abilities or willingness to keep a tight control over their margins I doubt whether many will bother to do more than add an arbitry figure to cover. Ken Nason
Hi, I think you are missing the point of tax rate changes. Cutting 2.5% VAT was not supposed to make you reconsider that DVD purchase; instead it was about, over a period of 14 months, leaving giving you and all consumers a little extra cash. THis site www.tmf-vat.com/european-vat says that it was about 200 quid per household at the end of the year. Multiple this by the number of household, this equals over 10 billion cash into consumers' hands in total. VAT is therefore a quick and easy method to get a lot of cash into the system. David
The VAT 'reduction' always seemed a waste of time to me anyway - most people could usually negotiate a discount of more than the VAT cut anyway, so few people benefit from it. And with the beer duty unlikely to be reduced by the same amount it was increased on Dec 1st last year, alcohol will simply be forced up in retail price rather than kept static as it ended up being. And one or two 'city people' have mentioned to me recently that VAT could be INCREASED to 20% next year to make up for what the Government lost this year. Or could that just be scaremongering...? Surely not.