VAT on children’s clothes in an election year?
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A think-tank which might be aiming to be the most unpopular organisation in the country, after the Labour Party, has claimed this week that the government should impose VAT (value added tax) on food, children’s clothes and household energy.
These goods are currently exempt from VAT because they are considered necessities and therefore a tax would hit the poorest the most and be unfair.
The Reform think-tank makes the claim that eliminating the exemptions on VAT would make the levy a less complex tax and bring the UK in line with other nations.
Currently, between 50% and 60% of the items an average household buys includes a VAT levy. VAT returned to 17.5% in January after being reduced to 15% on 1 December 2008.
The UK is one of four EU countries to apply a zero rate to food and one of three to apply a zero or reduced rate to children’s clothes, the report highlighted.
Analysts have been quick to point out that politicians are unlikely to leap to implement this report since its proposals amount to a massive tax increase aimed disproportionately at the poor.
Many readers will remember the strong public reaction against moves to put VAT on fuel bills in the 1990s.
The Reform report states that, “unfortunately all three major parties are committed to the most economically damaging tax rises – those on income and employment. The 50p income tax rate is seen by business leaders as a tipping point for the UK business environment.”
The report makes some very good points but, like many think-tank reports, fails to take into account the role of public opinion to which politicians can be so slavish.
As well as the VAT change, Reform said that changes to the personal allowance would also make the tax system simpler.
This would raise extra revenue of £8.3bn in 2011-12 and £8.4bn in 2012-13, compared with the government’s plans which would raise £11.1bn in 2011-12 and £14.3bn in 2012-13, Reform said.
Under its suggestions, Reform calculated that households with incomes of less than £17,000 would, on average, see a tax reduction from lower National Insurance Contributions and protection from the broadening of VAT.
Households with incomes of over £17,000 would, on average, see a tax increase due to the broadening of VAT and, for higher rate taxpayers, replacement of personal allowances with a zero rate threshold. Individuals earning more than £105,000 would see a tax reduction.
Any move which lowers taxes for the rich while increasing them for the poor is unlikely to be seriously considered by any party, except perhaps the Lib Dem’s, in a general election year.
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