VAT is a consumer tax, which means the person at the end of the chain pays tax on the product they consume. All along the chain VAT is charged and reclaimed. Well mostly. Sometimes it can be a very short chain, other times more complex.
The problem with VAT, and the reason for the provocative title, is it’s a regressive tax. The poorer somebody is, the more of their income they will spend on VAT. Across the income spectrum there is a marked difference with the poorest tenth paying 12.5% of their income on VAT while the top tenth of earners pay just 5%.
VAT is not the only regressive tax, but it is the one that impacts people whether they are working or not. It forms part of a poverty premium where the poorer you are the more you pay for goods and services which amounts to the poorest paying on average 42% of their income in tax while richest 10% pay on average just 34.3%.
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Rise will abolish VAT and will not entertain regressive taxes that pauperise the poor. We also intend to scrap National Insurance as it’s also a regressive tax and roll it into a Pay As You Earn (PAYE). While we accept there will need to be wealth taxes on occasion, we believe that it’s better to cut the wealth by ensuring companies cannot extort their workers and by forcing them to pay decent wages. We have other policies to protect small companies from increased wages.
For small traders abolishing VAT will be a boost. At present many traders are forced to apply a 20% surcharge on their invoices. This is a phenomenal amount to add to the price of their work and makes them non-competitive with traders who are not VAT registered, or those who take cash in hand to avoid reporting VAT in their books.
I’d be doing an injustice to micro businesses though if I failed to mention the issues VAT creates for non-registered companies too. It may be that they cannot negotiate as good a price from their suppliers as their larger competitors. On top of the higher price they are subjected to a 20% VAT charge which they can’t claim back. So the advantage of not having to charge VAT is somewhat undermined by not being able to reclaim VAT either.
Another positive about abolishing VAT is it’s often cumbersome and complicated both to submit and monitor. We end up with HMRC doing what are low value jobs. Far better to offer to retrain them in jobs that are more positive for them and the economy.
Rise will abolish VAT in 2 stages. This is to allow us to identify any negative impacts in stage one such as increased inflation and make the necessary adjustments. Although removing a consumer tax should reduce inflation, we will ensure we have a plan to resolve any areas where it pushes prices higher. Even if there are issues or risks identified, we will find resolutions for issues and mitigate risks.
To see our taxation policies visit The Policy Hub or to be part of the change you can join Rise here