On 4th January next year (2011), the main rate of VAT will rise from 17.5 to 20 per cent…. This single tax measure will by the end of this Parliament generate over £13 billion a year of extra revenues. That is £13 billion we don’t have to find from extra spending cuts or income tax rises*. George Osborne 22nd June 2010
George Osborne’s first emergency budget brought a 14% increase in VAT**. VAT is a consumption tax on goods and services which disproportionately effects low and middle-earning people. Increasing VAT is normal Conservative extremism as they try to delude voters that they are a ‘low taxation’ party. In the UK (2016) VAT was the third*** largest provider of revenue for the Treasury and is vital to government finances. Osborne’s extremist programme was aimed at reducing the welfare state at the expense of those who depended on it most: mothers, average earners and those living in rented housing. Osborne was driven by his desire to reduce the size of the state in Britain. The 2008 banker induced financial crisis made it politically possible to do just that.
The quotation above shows Osborne’s contempt for every low and middle-earning person’s standard of living. Three sentences raising £13 billion of additional taxation! VAT isn’t charged on all goods and services **** but citizens and tourists are bound to pay VAT at some point. Conservative governments love VAT because it’s very easy to collect. Osborne’s ultimate plan was to reduce Income Tax, which affects the highest earners most by raising VAT, which increases the tax burden on low and middle-earning people. This effect was a matter of indifference to Osborne.
VAT is blind to personal circumstances. Toys, DVDs, cinema tickets, Rolls-Royce cars, gas, electricity and water, takeaway meals and so on are all subject to VAT. The only way to avoid VAT is to not consume. In a modern society it’s very challenging to live without gas, electricity and piped water and therefore VAT is, in reality, unavoidable. Gas, electricity and water are taxed at 5%, because Gordon Brown reduced it, (a quarter of the standard 20% rate) to make sure they’re affordable. This reduction recognises the political fact that if essentials became unaffordable because of government taxation it may provoke civil unrest.
The possibility of civil unrest illustrates a powerful truth: taxation must be broadly acceptable. The Poll Tax, an extremist Conservative policy, was totally unfair and provoked riots in 1990. Many people who wouldn’t dream of rioting nonetheless felt that the rioters had a point. People will pay a fair tax even if it’s a ‘burden’. Currently VAT is charged at 20% and Theresa May said, (30th April 2017: TV interview: Robert Peston show) that that is a political maximum in Britain*****.
George Osborne made Income Tax the centre of his chancellorship. He created a political atmosphere that meant Income Tax rates only ever go down. The Conservatives want to raise VAT but can’t because the political price is too high. The two other critically important sources of revenue are Income Tax and National Insurance. Both may well rise to solve the problems Osborne created. The political consequences of Osborne’s six years in office can now be seen in the quality and scope of public services. There has been a visible worsening in public services to the distaste of many non-extreme Conservatives. Osborne’s obsession with Income Tax is haunting the Conservative Party as they face a Britain with government engineered poverty and a failed economy.
VAT is an efficient tax raising very large amounts of revenue. Unfortunately VAT also indiscriminately reduces the standard of living of low earning and middle-earning people if set too high. Osborne’s utter failure has been written in the Conservative manifesto (2017) with the unannounced but heavily trailed increases in both National Insurance and Income Tax both of which were anathema to him and Cameron.
**George Osborne British Chancellor of the Exchequer 2010-16. He raised VAT from 17.5% points to 20% which in real terms is 14.28% though most people focused on the more palatable 2.5%.
***https://www.ft.com/content/a389842a-e9f8-11e5-888e-2eadd5fbc4a4 Income Tax is the largest source of income followed by National Insurance. It should be noted that most British people don’t identify National Insurance as a ‘tax’ as they believe that that money is ear-marked for the NHS, which it isn’t.
****http://www.helpwithhmrc.co.uk/index.php/vat/vat-rates-zero-rated If you find this fascinating then you can see what is zero rated and what is exempt at https://www.gov.uk/government/collections/vat-notices-alphabetical-order
***** See https://www.ricksteves.com/travel-tips/money/vat-rates-in-europe for European rates, which range from 8% (Switzerland) to 25% (Denmark)