It's the second week of December and ever growing throngs of people are dipping into their savings accounts in order to stock up on Christmas gifts. This is nothing new; the 'Christmas Rush' has been the busiest time for all manner of retailers for decades and is the core time for high street shops and online stores to get a hefty boost to their revenue. In spite of the recession and widespread economic concerns on a global level, this year's December spending is looking as healthy and high as ever. This isn't however solely due to festive spirit but also heavily influenced by politics.
January 4th 2011 - V(AT) Day
On Tuesday 4th January 2011 VAT will be increased from 17.5% to 20% in the UK. Although a 2.5% increase may not sound like much, when you consider that VAT is payable on the vast majority of products and services that you purchase from stationery supplies through to online recruitment services- it all adds up. In most cases, retailers will pass on the increase to the consumer which means an extra penny or two on grocery items, all the way through to several hundred pounds more for a new car. In light of the potentially large additional costs when it comes to high value goods, many people are looking to buy larger items sooner rather than later. This rush to spend money before January 4th on top of the Christmas rush is a great short-term boost to the economy.
Potential Concerns
Aside from the obvious downside that a VAT increase impacts upon the less affluent as much as it does upon the more well off, there are other potential negative ramifications on a broader scale. For starters, the slightly higher cost of certain items may hit retailers hard - with the option of absorbing the increase themselves or passing it on to the consumer they risk either eating into their profit margins or losing business. It could also adversely affect charitable organisations - charities do not have to be VAT registered such that the maximum sum goes to the cause they represent. The flipside of this arrangement is that charities are unable to claim back the VAT they spend on items or services - as such the VAT increase could well have a noticeable impact upon the amount they ultimately raise.
The Upsides
Although 20% may sound like a high figure to many, it is in fact very much in line with the VAT levels of other European countries - on a par with Italy, Austria, Bulgaria and the Czech Republic and considerably lower than the 25% charged in Denmark, Norway, Sweden and Hungary. VAT also serves as a means of keeping income tax down, by providing a governmental revenue stream which many consumers don't even notice.
Whether you're for or against the forthcoming VAT rate hike in the New Year, there is nothing that can be done about it on a personal level- apart from leaving the country, and to do so for the sake of 2.5% seems a slight over-reaction!
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