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11 Dec 2009
Alistair Darling wanted to increase VAT to a much higher rate but was blocked by the prime minister.
Cabinet sources told The Guardian the chancellor wanted to increase VAT to more than 17.5% but was convinced by Gordon Brown to raise national insurance by 0.5% instead.
Follwoing the announcement this week shadow chancellor, George Osborne, said the rise in NI is a tax on jobs.
The Guardian calculated that a 1% rise in NI should raise £4.48bn for the country in a year. In contrast a 1% rise in VAT will generate more at £4.8bn.
The Tories claim the impact of the NI rise to the NHS will increase by £446m in employer contributions alone.
It is estimated returning VAT to its original rate of 17.5% on 1 January will restore £12bn in revenues for the country.
Further reading:
PBR 09: Retail 'disappointed' over end of 15% VAT rate
PBR 09: Cable attacks "unfair" and "optimistic" pre-Budget report
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Visitor comments Add your comment
Darling Hasn't Listened
Dear Sir,
Alastair Darling has once again shown that he has not listened to the pleas of business leaders when deciding to return the VAT rate to 17.5% as of 1st January. This move will most definitely confuse, and possibly cripple, businesses of every size that are fighting for their livelihoods on a daily basis.
The VAT Consultancy has been inundated with retailers professing they don?t know how to deal with these difficult changes, especially over the Christmas period. Many tell us that this is the wrong time. It has led to a huge rise in client business administration, reducing opportunities to focus on new business and sales, and leaving many questions that only the experts can figure out the answer to.
Great British Christmas traditions revolve around the return of goods in the New Year. How will retailers cope with understanding what rate to put on credit notes, what value of gift vouchers to give in return, and the value of exchanged goods?
But the problems persist way above the shop floor. For accountants and book keepers, the penalties that Her Majesty?s Revenue and Customs have in place are huge. For businesses that escaped errors at the beginning of 2009, they now must tread the same treacherous path that could spell the end of the company they work for. This has angered business owners who don?t feel the Government is supporting them at all.
Yet, businesses haven?t been made aware of the benefits that this change will bring. For example, there are substantial cash flow benefits in invoicing for goods and services at 15% before the end of December, yet delivering the goods after the 1st January 2010 because businesses are selling their products 2.5% cheaper but not having to buy product till next year. But with just 13% of our clients saying the rate change has improved business, its doubtful small gestures like this will be noticed, yet alone appreciated.
If our Chancellor does not make the benefits clearer to business owners that ensure he gets the VAT he needs to run our country, he will be lacking the support of the people who reside here when the predicted 20% rate is announced.
Yours Faithfully,
John Crawford
Managing Director
The VAT Consultancy
Laurel House
Station Approach
Alresford
Hampshire
SO24 9JH
Posted by: John Crawford, 14 Dec 2009 | 00:00