UK: Economic Stimulus of VAT cut – effective?
By Ben Robinson on Tuesday, November 25th, 2008 at 1:04 PM PST In Financial/Corporate News, Ideas and rants
Yep, the ecomony is f......reefalling!
You can’t say our coverage of the up-to-minute Mobile stories isn’t there, be it devices, services, or Industry news – IntoMobile is always on the case! We even cover wider news that pertains to given countries/economies, and how that affects Mobile – in this case it’s the UK, and the measures that are due to be taken in the next Government budget…
As you might know if you keep up with (Inter)National news, the UK Govt is planning to implement a Value-Added Tax (VAT) cut from 17.5% to 15% – a drop of 2.5%. VAT is the tax that is added to (most) items that are being retailed in the UK – certainly most consumer electronics goods fall in to this category.
Interestingly, the analysis from experts has shown that for the average person, the cuts might not count for much unless you are making big purchases – one example being that if you were buying a new car (a Mini) you might save £300 or so on the retail price. Of course, 2.5% of a small number is a very small number, hence the small savings on everyday items….
The Govt’s thinking is that this cut will free up money for people to spend, hence stimulating the economy – but most people who I have seen interviewed on TV said this was no more likely to make them go out and spend. In fact, people seemed to be looking for savings on utility costs – and in the main energy, and/or Council Tax charges.
As it pertains to Mobile then, assuming we are talking about contract Mobile Tariffs, a small saving on the VAT might have a small related effect – but of course, Mobile companies have long been finding ways to offer significantly larger perceived savings, without actually cutting customer bills e.g. you get 20% more call time or texts for the same money each month.
In these leaner economic times, people have either begun to, or you assume will start, looking to review their utility costs – and the Mobile bill could easily be one of the more significant monthly costs – coming in at anywhere from £20-80, that means about £250-1000 per year!
My take is that whilst the Govt changes may have little or no effect, it will be very interesting to see what the Mobile Operators do to both attract new customers, and keep existing ones – perhaps we should expect even better ‘teaser’ deals in the coming months.
Oh, by the way, that 2.5% cut in VAT is apparently going to cost the Govt £12.5 billion in lost ‘revenues’ to them – nice. Wonder who will be picking that bill up? I’ll give you a clue, the answer starts (and ends) with ‘us’!
As a US citizen, I can say we’re definitely feeling the squeeze here, much as you are over seas in the UK, so with that in mind I wanted to stop by and say thank you for the comedic relief your graph provided.
J
The VAT cut is pointless. 2.5% is not going to make me buy anything. It’s probably just going to make my council tax go up (which is already at an extortionate £120/month).
THe problem is as well that firms might not in fact change the price at all, instead the they raise the price of the good and the consumer will not notice a change in price. THe firms instead have an increased revenue and they benefit in that way. And 2.5% can be a lot of money when ur talking about a production of million goods and millions of pounds.
£120 a month, Snidely? Lightweight
2.5% makes barely any difference, except it now means retailers announce silly amounts of pence like £29.20 instead of £29.99. (not that putting .99 and .95 on prices isn’t silly)
VAT is a regressive tax that hit hardest at the bottom. Of course a VAT cut will increase aggregate demand, especially in those segment that consume all or most of their income- if you want to stimulate production/consumption it’s much better than tax cuts for the well of that use only a part of their income on consumer gods and services.
A nice shift from loony neo-liberal trickle down nonsense tax cuts.
In consumption taxes economic dynamic effect is definitely present. The cashier type calculate on VAT increase and say it will increase revenue so and so but it could very well be negative because of less consumption, less production, unemployment and so on and of course the opposite with lowered consumption taxes.