Archives for November 25, 2008

We can all make mistakes, but it seems Alistair Darling has already had two embarrassing ones in the volumes of pre-Budget report documentation.

How many more to follow?

There was the 18.5% VAT tax rate scheduled to be introduced in 2010-11, but which should - we are told - not have been printed, as the idea was considered and then discarded.

And now it is clear the whisky duty is set for a speedy U-turn. The idea was to cut VAT from 17.5% to 15% from next week until the end of next year.

For alcohol - as with petrol and tobacco - duty is to be increased equal to the cut. Hence, a neutral effect, but no word on whether the duty comes down again after 13 months.

The actual impact on Scotch was not what we were told was the intention. Down came the VAT, but the duty went up, by a net 29p per bottle.

And with very little revenue benefit, Chancellor Alistair Darling has realised there is far too much political pain in this.

The whisky lobby is a formidable one, and Labour's opponents are quick to back it.

So we're learning tonight we can expect an imminent revision to the statutory provisions behind next week's VAT changes which are being sped through parliament this week.

The uncharitable (and I know you're out there) might think this was the Chancellor imposing a wee stealth tax on Scotch and hoping no-one noticed.

My guess (being reasonably charitable) is that, in constructing a £20bn package to counter-attack the recession, while plunging us all into unimaginably large debt, his eye may have been off the Scotch whisky ball.

The Treasury seems to have taken the average strength of a measure of spirits across off-sales and on-sales, and come up with its increase per bottle.

But as Scotch is slightly stronger than other spirits, at 40% proof, and heavily weighted towards off-sales, those two elements conspired through Treasury calculations to hit the whisky industry hardest.

Privately, meanwhile, there are government grumbles that the help to whisky exports from the recent weakening of sterling, particularly against the US dollar, should be far more use to it than minor adjustments on tax in Britain.

In researching the story earlier today, I have found out Some Interesting Facts. For instance, exports account for 90% of whisky production - up in value but down in volume terms over the first nine months of the year.

In Britain, around 80% of sales are in-off sales and 80% of sales are of blended whisky instead of single malts.

And in the final eight weeks of the year in Britain, 30% of blended whisky off-sales take place and 40% of single malts, which helps explain why there is such sensitivity on the duty hike.

For anyone wondering about my Christmas, it's single malt for me - but not much. I'm mildly allergic to the stuff. An Interesting Fact you could possibly live without.

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The rate of VAT is to go up to 18.5% in 2011-12, according to the Treasury.

That's on top of the return to 17.5% already announced, and means roughly £5bn extra on Britain's shopping bill, as part of the payback budget that will wallop us once the anti-recession splurge is over.

The news is contained in Treasury documents which were intended to provide an explanation of the pre-Budget report published yesterday by Chancellor Alistair Darling.

"The proposed changes will reduce this (VAT) to 15% from 1 December 2008 until the end of 2009," it says, just as the Chancellor announced.

But then: "The standard rate will then return to 17.5% from 1 January 2010 and subsequently increase to 18.5% in 2011-12."

The catch is ... it's wrong.

HM Treasury didn't mean what it published. We're now told that mandarins had been considering what might happen if VAT went up to 18.5% and forgot to delete it before heading for the printers.

The document goes on to give the Treasury's estimate of how much it will cost business to implement the cut that definitely is going ahead, followed by the return to 17.5% at the end of next year.

It goes like this: the time businesses will take to familiarise themselves, of between 30 minutes and three hours, will cost them more than £24m this year and another £16m next year.

The cost of implementing the cuts and subsequent rise is a bit more costly for those who sell to the public with VAT included in their prices, as it includes changes to barcode and relabeling.

Restaurants might have to reprint menus, for instance.

That should cost up to £600 for big businesses, with a total for British business of around £50m this year and £45m next year.

Extra accountancy costs could top £50m over the two changes.

The biggest part of the bill is in accounting software changes.

With a simple accounting system, that could cost you a tenner, but the more complex variety may require £500 of patches and fiddling with the IT, with a bill to business of £70m this year and £45m next year.

With a modest bit of rounding up and down, the total cost hits £300m.

If the Treasury changes its mind on that 18.5% idea - deciding it may have been necessary after all - at least businesses will be better prepared, and the changes should be cheaper next time.

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