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VAT hits 18.5%, or does it?

Douglas Fraser | 20:06 UK time, Tuesday, 25 November 2008

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.


  • Comment number 1.

    "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."

    Aye right!

    If it simply been "under consideration", it wouldn't have been in the draft text for the PBR. The only way that it could have been there was if it was a definite proposal.

    They may have pulled the idea at the last minute (and forgotten to cut the reference in the supporting documantation), but your acceptance of the Government "explanation" seriously devalues your credibility as a journalist.

  • Comment number 2.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 3.

    I don't think it is wrong. They may well have not intended publishing it but I'm quite sure that the rise to 18.5% will actually happen.

  • Comment number 4.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 5.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 6.

    The mods didn't like my suggestion that Douglas might have waited for other parties' responses, so I've deleted that from my #2, and this is what I posted apart from that.

    20:25 | 25/11/2008
    Vince Cable, Liberal Democrat Treasury Spokesman
    BBC News

    Mr. Cable commented on the treasury document which shows that the government considered a rise in VAT.

    He said: "This is either gross incompetence or duplicitous. It may be that this may be one option that they didn’t pursue. But if that is the case, why did it find itself in public documents?"

    He added: "There are two explanations: they did pull it and maybe one of the reasons that the deficit is so alarmingly large is that they realised that this wasn’t going to be politically palatable.

    "Another explanation and this is more negative, is that they still have this on the stocks for after the election. This is probably their preferred option if they have to proceed with further tax rises."

    It could also be gross incompetence and duplicitous.

  • Comment number 7.

    Considering that we can only expect NULABOUR spin on Douglas Fraser's blog, i suggest that it be boycotted.
    If he receives no comments then what else can they do but pull the plug on his blog.

  • Comment number 8.

    Wee-Scamp, this is a typical NULABOUR trick, put the idea forward in the budget paper, then say it was mistakenly left in. and in 2011 turn round and say, but we published our intention in our 2008 budget report.
    Does Douglas Fraser and the NULABOUR broadcasting co. ( the LBC, as we do not have a BBC anymore ) think that we will be taken in the same way we fell for the 10p tax fiasco.

  • Comment number 9.

    I wonder what would happen to the UK economy if anyone who is still making money - suitably financed and qualified enough to leave - ups and does exactly that? Leaves the UK before the huge tax hikes in 2010/11

    Imagine - hordes of skilled workers leaving the shores of "Britain" for lands anew in Australia, Asia, America - Wherevera...

    Would that make life here harder? Would anyone grudge the people who leave for doing so because it will adversely affect the economy our "government" has created for us?

    I don't think I'd be angry, I'd be thinking about leaving with them. You'd be surprised how much money you can save in a year or two.

  • Comment number 10.

    I think it will go up the VAT...


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