Wednesday, June 23, 2010

Class war and VAT

For the first time in a very long time I didn't watch the Budget, why would I? I'm in Spain in the wonderful heat of the mountains! In fact, I even decided to wait until this morning before reading how the Government intended to screw me - not that it wasn't all leaked and trailed in the Sunday papers anyway which I read at the airport.

I understand, having glanced around the web this morning, that there's been considerable reaction to the VAT rise from pretty much all quarters. On the one hand it's condemned as a bad thing because it's a tax rise, and on the other it's condemned as being unfair because it disproportionately hurts the poor as they tend to end up paying more of their income out on it than the rich.

The argument, advanced by the Left, is you're pretty bog standard statistcal jiggerypokery that creates the perception of shocking inequality without for a second thinking about other possible contextual factors that make it not nearly as bad as they make it sound. Sunder Kawala put it like this,
The richest 10% pay one in every 25 pounds of their income in VAT; the poorest 10% pay one in every seven pounds as VAT (Source: Office of National Statistics)
Sounds terrible doesn't it when you see it in those terms huh? Now let's put some contextual reality on that. First up, let's deal with the "richest 10%" line, this is class war at its best.

To get yourself into the "richest 10%" you need to earn just over £50,000 a year, a household with two people earning £25K achieve that and whilst they may seem to have a lot more money coming in than the lower income brackets they are not, by any stretch of the imagination, rich.

Comfortable certainly, although still very likely to be stretching themsleves to pay mortgages, saving each month for a holiday once a year, running a car, paying for public transport to work, paying energy bills, phone bills and the like. Let's not piss about here calling these people "rich".

Being "rich" is when you don't know or care when payday is. Trying to categorise people based on statistical groupings around income is little more than rhetorical envy politics that fails to recognise the reality in which ordinary people live.

Then we have the "poorest 10%" and their income. This group earns, just over £14,000 per year. Undoubtedly not as well off in income terms as the so-called "richest 10%". However, this group is subsidised already by the "richest 10%" through tax redistribution, benefits and the like. Thus their income is split between earned income, and handout income.

The point I'm driving at here is that making the "one in every 25 pounds spent on VAT vs one in every seven pounds spent on VAT" argument fails to realise that on the one hand you have someone spending their money, and on the other you have someone spending money that that's been taxed once already and given to them for free.

I'm not arguing that they shouldn't be given the money, rather that trying to make out VAT unfairly hits those on the lowest income ignores the reality that the money spenton many of the servives that are subject to VAT isn't really "income" int he traditionally earned sense.

Don;t misundertand me here though, I'm not saying I support the rise in VAT. I'm just aking issue with the argument being deployed by the Left against the rise. Much better to argue against it in the basis that people will probably start to spend less, or will start using the black market to avoid it.

I wouldn't be surprised if the words "can we do it without the VAT if I pay cash" becomes more commonplace after January in thiose areas of trade which can accomodate such things - e.g. mechanics, plumbers, builders, market traders etc.

To be honest though, the most interesting thing to watch over the next few years, assuming the Coalition can get its VAT hike through, will be if HM Opposition campaign on a platform to cut the rate of VAT. They might be arguing vehemently against it now, but I'm willing to bet they won't cut the rate if they won the next election and it remained above 17.5% at that time.

That's politics you see, and Government's - espeically Labour Government's - love to take our money and spend it as if it is theirs.

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