VAT: Value Absent Twaddle

A lot of total and utter rubbish is being spouted about the VAT increase, by my current two favourite pillars of lefty politics; Ed Miliband and the BBC. Ed has been in the pulpit preaching about the evils of the VAT rise telling us how it is an insidious plan to lead the poorest in society to rack and ruin. Again, as I mentioned here, the Opposition have no actual realistic alternative plans, but this doesn't stop Red Ed and pals sermonising about the terrible VAT monsters in Government. The Beeb is, of course, more than happy to explain why he's right. Only he's not.

The statistic on which Labour love to hang their collective hat is that some of the poorer in society expend marginally more of their total expenditure on VAT than some of those better off. We need to look at this claim on a couple of levels. As Disraeli apparently once said, "there are lies, damn lies, and statistics". I'm not sure if he intended the Oxford comma when he said it, but I like it.

Firstly, the proportion argument is somewhat ridiculous when we look at the actual numbers we are discussing. For the poorer households, the VAT rise will add a whole pound a week to their expenditure. For the middle income bracket, £4. For the richest, £10. So as a proportion of the total extra tax paid, to use Labour's favourite method of comparison, higher earning brackets pay 400% and 1000% of the total of the poorer bracket. Seems progressive rather than regressive, yes? You might also want to compare these increases to your energy bill. I'll bet dollars to doughnuts your gas and electricity rise is a hell of a lot higher. And was last year. And the year before.

Secondly, we need to look into why there are sometimes poorer people paying more of a percentage of their expenditure on VAT. Food and children's clothes are exempt, that sorts a large part of the necessities of life. Then VAT comes on all things car related, all booze and fags, all phone bills, all your energy, all household items (electrical and otherwise). Pretty much everyone pays those, regardless of income bracket, some elements of that category more by choice than necessity. Then as we move into the middle and top income brackets we have mortgage bills, no VAT there, some shares or other investments, again no VAT. Now the richer people pay more VAT too - more expensive versions of everything, simply more of lots of things, but ultimately investments including houses often account for a large part of their expenditure. These are taxed elsewhere - capital gains, corporation, dividend taxes and the like.

So we see that the already excessively taxed middle to high earning classes do pay a bucketload of tax. Sometimes, though, despite VAT increases hitting them in total harder than the poorer classes, their other taxed expenditure means that as a proportion of expenditure some poorer people will spend more on VAT. It is this utterly tenuous statistic to which the Labour party clings when wanting to gain some opportunistic press over a tax rise their last chancellor championed. Kept that quiet recently haven't they - anyone seen the eyebrowed one of late?

So, let us then look at the coverage the BBC gave the 'enormous' price hike. Wall to wall 'VAT losers' and 'VAT victims' stories for 2 or 3 days. Every now and again they'd find time to publicly try a man who as yet has not even been charged let alone tried, for murder. Or for having blue hair - it should have been red, of course. Everything was about the cost to people of this tax. Not even a murmur of what the cost would be of a double dip recession. If confidence in the UK economy fell because we played along with Labour and didn't make any cuts because 'cuts = victims', and we defaulted on our stupendous debt, what would then be the cost? Not even mentioned. Watching the coverage as an outsider you would be forgiven for thinking there was no need to raise more money and this was done because the Government is vindictive. Bring on News Corp - they still only control just over 1/2 of what the Beeb does as a percentage of UK news coverage, so maybe they might balance things up a little.

The cost of doing nothing would be horrific. Not a 2% increase in the cost of your television, but a 4, 5, 10, 15% increase in everything as inflation goes through the roof, and borrowing becomes prohibitively expensive as lenders pass on the increased costs of lending to a now wobbly nation. The only hint of a Labour alternative has been whisperings about income tax or national insurance rises (employment tax). These are the worst tax increases for the economy - ask anyone with half an economic mind.

The Beeb's one sided coverage was typified by their insistence on using the benchmark of the 37 inch flat screen TV to represent the harsh price hikes the poorer faced. Now I don't have an economics degree but I don't think I'm wildly off target in suggesting that anyone who can afford to spend £500 on a luxury item, can probably live with a quid a week on their bills.

Ed Miliband's hollow leadership was typified by his insistence that on the basis of his pathetic 'percentage of expenditure' argument, the Coalition had betrayed the poorer in society to such an extent he demanded that they apologise. Wouldn't it be rather more apt if Red Ed apologised for Labour totally and utterly screwing everyone, regardless of their income, nearly bankrupting the nation and ultimately making these measures all necessary, and many more after them no doubt?