Reduction in VAT - it won't work..

[J9withdogs]

The following was contained in an email that I received today from my pet-food supplier:

 

As a general rule we intend to pass on all of the VAT benefit ... but our prices are amended continually (to ensure we deliver against our guaranteed lowest delivered price promise) and we are waiting to hear from many manufacturers as to what their RRP policies will be; so over the course of time some products will inevitably be 'rounded back up' to sensible price points (eg. 9.99 becomes 9.78 over time it is inevitable that we will return to 9.99). So to ensure you get the full benefit, now is a great time to shop with us!

 

In other words - prices will be hiked to negate the tax reduction.

 

 

 

[Brian Kirby]

No, they are just trying to induce you to bulk buy, against the probability the price will rise in future, while pointing out that they are passing on the VAT reduction.  The price may rise in the short term, it may not.  Over the longer term, life surely teaches us that most prices increase?

If their price does rise, you will presumably look to see if other possible suppliers have done likewise?  If they have, the rise will be as likely to be due to rises in the cost of the underlying products/ingredients, as to profiteering on 2.5%.  If they have not, switch to a cheaper supplier.

[colin]

Talking to a supplier today he was concerned that all new stock imported will have to increase by 30% due to exchange rates.

[davenewellhome]

Well we are passing on the 2.5% reduction in VAT on our major sellers, on the lower volume products we are maintaining the current pricing, simply because this allows us to reduce the overall cost of the best selling products. Overall we are "sucking the mop" ( a colloquial term for picking up the costs) on everything to try and stimulate custom.

 

D.

[J9withdogs]

I'm waiting for Poundland to be renamed the "97.75 pence shop".

 

Doesn't have the same ring to it, does it? Guess they will just be making 2.25% more profit >:-(

[malc d]

J9withdogs - 2008-11-28 8:50 AM

 

I'm waiting for Poundland to be renamed the "97.75 pence shop".

 

Doesn't have the same ring to it, does it? Guess they will just be making 2.25% more profit >:-(

 

 

 

Complaining about the prices ( and profits ) in a pound shop ????

 

I don't believe it !

 

 

 

;-)

[J9withdogs]

malc d - 2008-11-28 8:58 AM

 

J9withdogs - 2008-11-28 8:50 AM

 

I'm waiting for Poundland to be renamed the "97.75 pence shop".

 

Doesn't have the same ring to it, does it? Guess they will just be making 2.25% more profit >:-(

 

 

 

Complaining about the prices ( and profits ) in a pound shop ????

 

I don't believe it !

 

 

 

;-)

 

No, Malc, complaining about the very flawed plan. It's just going to fuel inflation, in my opinion.

 

I hear that we are not going to get the 2.5% reduction at the fuel-pumps either - the government have matched it with a hike in duty.

[malc d]

J9withdogs - 2008-11-28 9:21 AM

 

malc d - 2008-11-28 8:58 AM

 

J9withdogs - 2008-11-28 8:50 AM

 

I'm waiting for Poundland to be renamed the "97.75 pence shop".

 

Doesn't have the same ring to it, does it? Guess they will just be making 2.25% more profit >:-(

 

 

 

Complaining about the prices ( and profits ) in a pound shop ????

 

I don't believe it !

 

 

 

;-)

 

No, Malc, complaining about the very flawed plan. It's just going to fuel inflation, in my opinion.

 

I hear that we are not going to get the 2.5% reduction at the fuel-pumps either - the government have matched it with a hike in duty.

 

 

 

I agree with you. The idea of charging us more to drive to the shops so that we can save a few pence when we get there seems a bit barmy to me.

 

Trouble is none of the politicians seem to have a clear idea on what to do to get sales moving, and there's a lot of guessing and hoping going on.

 

:-( :-( :-(

[J9withdogs]

I think that a big reduction in fuel duty would bring the best results short term as it affects everything we buy/do, but I guess that would have it's own drawbacks.

[malc d]

As most of the money that's been issued by the mint over the last number of years is now stacked away in far eastern bank vaults, maybe we should just print some more !

 

;-)

 

( p.s. Before I get jumped on by any of our 'economists' - the above comment is a joke )

 

:-(

[howie]

Don,t think this reduction was mean,t to help buyers, and more a way of helping businessess by helping their tax burdens.

Most prices are shown as they are by their price tags without any reference to VAT. Take Dave for example. He advertises cruise control fitted for £360 and I would be supprised if he then adds VAT to that total, but if he carries out repairs or services your van then you can expect VAT to be added to his labour and parts.

Not sure how the law works, but if no reference to VAT is included in a price tag then the price you see should be the price you pay. e.g. you buy a three piece suite priced at £999 and that is exactly what you pay.

[Brian Kirby]

malc d - 2008-11-28 9:39 AM As most of the money that's been issued by the mint over the last number of years is now stacked away in far eastern bank vaults, maybe we should just print some more ! ;-) ( p.s. Before I get jumped on by any of our 'economists' - the above comment is a joke ) :-(

Joke maybe, but that is exactly what we shall end up doing, and so will the US for at least one other.  The government is absorbing our debt, as well as the debt it has run up for itself.  However, it doesn't have in increasing income with which to pay it off.  It says it will raise taxes to cover the shortfall, but the current numbers don't stack up.  There remains a substantial shortfall.  It doesn't want to raise taxes beyond a certain point, because that would be political suicide, so it will erode the value of the remaining debt by causing (it hopes) a little inflation, and it will cause that inflation, if events elsewhere don't get there first, by printing more money.  More money circulating in search of the same amount of goods = price rises = inflation.  Probable result is that those on fixed incomes will end up paying more, proportionately, than anyone else, for this little debacle.

[Guest Tracker]

Haulage companies recover the VAT they pay on fuel but not the duty.

 

It therefore seems to me that a replacement of 2.5% VAT with extra duty on diesel will be inflationary to anything that is delivered by road transport or diesel powered trains?

 

Typical Brown arrogance - but will it be enough to depose the most inept government that I can ever recall enduring at the next election?

[malc d]

Tracker - 2008-11-28 11:35 AM

 

Haulage companies recover the VAT they pay on fuel but not the duty.

 

It therefore seems to me that a replacement of 2.5% VAT with extra duty on diesel will be inflationary to anything that is delivered by road transport or diesel powered trains?

 

Typical Brown arrogance - but will it be enough to depose the most inept government that I can ever recall enduring at the next election?

 

 

 

I don't think you should hold back any longer Tracker, it's time you told Gordon what needs to be done to get the world economy going again.

;-) ;-)

 

 

 

 

[Mel B]

Don't expect to be able to get cars any cheaper ... we're looking at getting another one at work, my boss rang them today to enquire that if, when we place the order on Monday, will the VAT be reduced as the rate will have gone down by the. Answer - NO. In other words they are pocketing the difference and just fiddling with the figures to keep the price of the car as it is. >:-)

[jacqui]

Have just spent the day redoing the website to reflect the new VAT rate,

no wonder I have a headache *-)

prices advertised include new rate, so customers know what they pay when they come to use,

 

J

[J9withdogs]

If only everyone was so honest as you, Jacqui

[BGD]

I too don’t think that the small (2.5%) and temporary reduction in VAT will have any effect at all.

 

Frankly it’s a poorly-considered and ineffectual distraction.

The implementation costs of this change will probably cost UK businesses more than the possible extra profit/extra sales they might ever be able to win….because they have to reverse the whole process again in 12 months time, and none of them are gaining any competitive advantage over their competitors anyway through this.

 

In reality, if you are considering buying a big-ticket item (say a new car for example), in the end all you are interested in, surely, is the total on-the-road price that you’ll pay.

 

Any company who is trying to sell you such an item will be making judgements about how much they charge you in total, trying to balance their need to maximise profit (which pays for new investment, dividends for their owners, and secures the long-term future for their employees), with the need to keep on getting at least some cash into the business in such an economic slump for their products (which pays the wages of their employees, and pays their suppliers, and all their massive overhead costs).

 

Seems to me that it matters not one jot how much of the on-the-road price that they ask you as a private customer to pay to buy their car (rather than a competitors car, or no car at all), is made up of VAT, or Import Duty, or Vehicle Excise Duty, or as a contribution towards their Corporation Tax, or any other of their tens of thousands of other cost elements in assembling the vehicle, importing and/or or transporting it to the Dealers, or the Dealers costs/profit in doing the PDI and selling it on to you.

 

As consumers, we just negotiate with some (never all) of the places that are convenient to us where we could obtain that big-ticket item, compare the cost/benefits of each, and in the end choose to buy the brand/spec of car from the supplier who offers us at that time what we perceive to be the best benefit to us at the lowest cost to us.

 

It is most unlikely that any savvy potential consumer in the current climate would accept paying list-price for such an item, and any Dealer would be most unlikely to sell anything unless they were offering big discounts (much, much bigger than 2.5%) on the previous “Good Old Days” prices that they were able to sell the items for.

 

In a downwards market, more and more suppliers become more and more desperate to win sales from a deceasing pool of possible buyers. In most, if not all cases, manufacturers and Dealers will already be losing money on every car (washing machine/computer/Motorhome) and their only reason for offering their products at a loss to them is because even by selling at well below their costs, they are at least generating at some cashflow which keeps the business going, whilst they eat into any cash-at-bank or credit facilities to fund the balance between sales revenue and cost.

Additionally they reason that they should get some extra money from the punter into the future from servicing and spares sales.

And one more sale for them is one less sale to their competitors.

 

But it’s the total retail price that you pay that is the driver here, and that’s far more of a flexible thing than just the VAT element.

It’s for the Dealer to set whatever that minimum is for his product, and then for him to pay the 15% VAT on that to the HMRC, not you as the buyer.

The VAT element of that really doesn’t matter to you. Competition between total retail prices is what matters.

 

So just go out and find the best deal you can find in terms of total retail price, amongst all the suppliers who are slashing those total prices, desperate to receive some sales revenue from you.

 

[BGD]

Oops - submitted my post twice! :$

[Guest Tracker]

We've just ordered a new Panasonic TV package from a local dealer - not one of the chains - and I was able to secure a price reduction of about £20 yesterday to reflect the reduced VAT that will apply from Monday.

 

On the total package price, £20 is neither here nor there and it had no influence on our decision.

 

However £20 is always better in my pocket than the government's pocket and all for the effort of asking for an invoice date of 1st December.

 

This, small for one man but large for one economy, reduction in VAT is going to cost us dear in years to come but I fail to see how it will stimulate retail demand when homes and jobs are being left so very vulnerable?

[Brian Kirby]

Yes, I confess 2.5% underwhelms me as well.  We are all agreed, so can we try a new tack?

Can we instead play at suggesting what we think will work?

However, in the interests of sanity, one option cannot be to say we should not be starting from here.  We are where we are, and we can't re-write history however much we might wish to.  Here, and now, is a given.

Can we also try to keep it at least a little realistic, and balanced?  BGD, and others, effectively sabotaged his own " Debt Iceberg" string (his prerogative) in the lengthy and interminably boring sniping contest among certain contributors whose interest was not the subject at hand, but their own egos.

To date we have a large reduction in bank base rate.  We have a small reduction in VAT.  We have substantial propping up of, and the odd nationalisation of, banks.  We have generally excessive debts, public and private, that we shall all (one way or another) be repaying for years to come.  We have currency instability.  All stock markets have pretty much halved in value over the past year.  So far as I know, every economy in the world is, to some degree, in the same boat, and already in, entering, or flirting with, recession.

So what should one, actually, do?  All government aid, of whatever kind, converts into future taxation, that risks destroying any recovery just as it starts.  Significant further reduction of bank rate is liable to further depress the value of the pound, with resulting increases in the cost of imports, especially oil, with some offset from increased export competitiveness.  Cutting back existing public spending merely converts the savings in salaries/jobs into unemployment pay.  Spending on major infrastructure projects (those that might be justified as investment), cannot be implemented short term (because of planning and procurement logistics).  Propping up bits of industry here and there, to protect jobs, risks leaving the government eventually owning those bits of industry. 

So, what does one do?  The government has taken the route of small interventions talked up, to try to make it look and sound better than it is.  Presumably to try to boost confidence. 

But is there a better way?  Should they do nothing?  Should they just savage public expenditure, a la Thatcher, and let the costs of unemployment soar instead - though that cost too, has to be repaid eventually.  Or should they just tinker differently, but if so with what, and to what effect?

Over :-)

[Guest Tracker]

I am only a simple bloke, but it seems to me that the best way to create a feel good factor is to prevent normal and sensible people who lose their job through no fault of their own from losing their homes and the cost of 2.5% VAT would go a long way towards subsidising people by adding their missed payments to the mortgage debt until they either voluntarily sell the home or recover their own finances enough to pay back the extra money thus borrowed. Would it work - I don't know - but it is surely worth considering?

 

Another way is to force banks to reduce their self interest and consider the country by forcing them to lend to business and to home owners to keep them afloat. It seems to me that the banks have more than enough funds underwritten by the government to do this but choose to put self interest first - as ever and as expected.

 

Surely genuine governmental attempts to secure jobs and homes are worth more than retail sales when it comes to both the national interest and the feel good factor?

 

But what do I know - I'm just a self reliant tax payer!

[J9withdogs]

Another way would be to reduce the cost of road-fuel.

 

If someone is now paying an extra £40 to get to work, that's £40 they can't use to pay their mortgage.

 

Add to that the knock-on increased cost of food etc, no wonder people are missing mortgage repayments!

[BGD]

OK Brian -

 

Here are some ideas of mine about what we should do, on the basis that we are where we are:

 

 

The things to be done by HMG have to be Big. And Quick. And within their baileywick.

 

 

 

So:

 

Halve Employers NI tax.

Immediate, and I believe very effective in reducing the costs of keeping employees employed.

Positive effects on job preservation in both private and public sectors.

The reduction in Exchequer revenue from this would I believe be far outweighed by the reduction in Unemployment benefits and the complete lack of any Employers NI and employees PAYE taxes received if the employees concerned had become redundant.

 

Immediately ban ALL central Government, all Public Sector employee, and all Local Authority employee travel and accommodation except under “extreme necessity/emergency” circumstances.

And issue an edict that any such remaining travel will be second class/economy flights, and any accommodation will be in no more than 2 star hotels.

May not sound that big, but would for sure in total save hundreds of millions of pounds per year, which at least makes a tiny dent in the black hole of Public Sector Borrowing, and reduces the requirement for taxation to fund the interest payments and eventual capital repayments on such borrowing.

Also finally sends a Leading-From-The-Front, and we’re-taking-a-little-bit-of-pain-too message to everyone else.

 

Immediate Blanket ban on ALL immigration/work permit or work visa applications from all non-EU citizens for the next 1 year (reviewable annually thereafter).

I include all asylum seekers in this ban.

Big push by Police and Immigration Control to identify and forcibly remove immediately all (realistically not all, but all who can be found) illegal immigrants.

Employers thus obliged to fill whatever few vacancies they might have in future from the ranks of UK applicants.

Very Substantial money savings which reduce need for extra Public Sector Borrowing.

 

Blanket ban on any recruitment into Public Sector organisations for the next 12 months. Such organisations to have to redeploy existing staff to absorb natural wastage/retirements.

Big, big cost savings, enabling lower PSBR.

 

Implement an enforced change to the employment contracts of every Public Sector employee to the effect that whilst pension accrual to date will be maintained, all future accrual will be on a Defined Contribution (Money Purchase) basis. Anyone who doesn’t like it is free to leave.

MASSIVE savings on taxpayers/PSBR, commencing the following day. And a more equitable situation established vis-à-vis the Private Sector which is currently bearing the cost burden of funding this.

 

To assist the housing market, and thus construction etc etc, remove the following with immediate effect;

Stamp duty on all domestic and industrial property sales below £500,000.

The (totally useless) HIPS system and its associated costs.

 

Suspend all overseas aid budget expenditure for the next 12 months. All of it.

Sorry. But that’s the way it is.

Our unemployed, our sick, our aged, our disabled need it whilst the taxes from our shrinking labour force are insufficient to fund what they need.

 

Remove all troops and associated logistics costs from Iraq. Immediately.

The costs to the UK are staggering in both financial and human terms.

Savings: many billion pounds per year directly. Plus a massive saving in payouts/disability pensions/death benefit/widows pensions/medical treatment costs.

 

Savings in PSBR form all the above should fund the NI reduction, stamp duty reduction, and also allow an immediate increase in employees “Free-Pay” PAYE allowance, to (say) £10,000. The more of what they earn they retain, the more likely they will be to spend it on private sector supplied goods and services. Spending on those is what will bring us eventually out of this steeply declining economic trough.

 

 

I would not reduce road fuel duty. But neither would I increase it (as Labout has announced they will do next year)

 

 

[Keith T]

Just a mathematically point - the 'reduction from 17.5 to 15%' in VAT isnt actually what is seems and does not work out at £25 per £1000 spent.......so even the supposed 'generosity' of the chancellor is yet another con.

To find the 'real' value, you need to divide £1000 by 117.5 (as the initial figuire includes VAT),then multiply by 115 ( to include the new rate), and the resultant figure just under 979...ie a 'saving' of only slightly over £21 per £1000!

This does not seem to have been picked up by many of the commentators, and certainly not Alistair Darling - although even he must have worked this one out!!!!(tohis benefit, of course!)