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BUSINESS 4NETWORKING [Drop of 2.5% in VAT - Good or Bad Move?]

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Posted on 24th Nov 2008 at 22:31

Drop of 2.5% in VAT - Good or Bad Move?


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Posted on 25th Nov 2008 at 12:00

I would like a fourth option - its a slight of hand, that in fact will make things neither better nor worse.


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Posted on 25th Nov 2008 at 12:16

I am going for "good", but not in an obvious way.

It is not going to suddenly bring prices down because a) it is too small to make much difference and b) prices of just about everything are coming down anyway by much greater amounts due to natural market forces. So, it is not going to create any magical consumer boom in itself.

However, there is no doubt that it really will inject a very large amount of money into the economy. That money will help to preserve employment and indirectly create more sales.

The biggest perception hurdle that the public always has is in viewing such changes purely from the angle of how it affects them as individuals. The answer is that it will affect each and every one of us in a tiny (almost imperceptible) way, but the overall economic effect could be substantial.


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Graham Smith
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Posted on 25th Nov 2008 at 12:18

Definite undecided...

Where it may spur people on is on those big ticket items, which would have a trickle down effect e.g.

Cars - suffering big time

Kitchens - could equate to a few hundred pound saving, and pushes through to manufacturing

etc.. This could then be those that can afford to spend the money doing it, rather than those that should be carrying on saving

Interestingly, it could be banks that benefit quite nicely, as they generally cannot reclaim VAT if I remember correctly!


 
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Posted on 25th Nov 2008 at 12:27

It's not bad, but then it's not very good either. As Steve points out, it'll make an imperceptible difference to prices (2.5% cut in VAT vs 40% off at threshers :)).

The big problem I have is that it won't feel like a tax cut. Employees can't say "ooh, look I've got another £30 to spend every month", because that's not how it works.

On the flip side are the tax increases, which are very hard hitting and tangible. For people earning £30,000 a year, for example, the NIC increase will remove £150 from their pockets annually.

The same calculation can be done with the top tier income tax increase.

So in terms of consumer confidence, the net difference is a negative one. Why didn't Darling wait to announce the hikes if they ain't gonna happen until 2011? Now everyone will be worrying about then and not thinking about spending now!

Anyway, I've surveyed the opinions of business groups and accountants in this article:

http://launchlab.co.uk/article/Start-up-News/Mixed-business-response-to-pre-budget-report/573

They are happier with the outcome than I would have expected!


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Posted on 25th Nov 2008 at 12:39

The tax increases are some way off (except for fuel, fags etc..), and for the consumer the immediate increases are offset. On fuel, we will be seeing bigger drops than this anyway as oil looks like it may be depressed for a little while


 
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Posted on 25th Nov 2008 at 15:27

I think, for me, the detailed calculation of gains and losses is not actually the issue that bothers me - even though the tax rises for me will reverse the VAT reduction.   But then, with the current stock market, that is a relatively minor impact!  There are bigger forces playing!!

However, overall this package of measures was just too complicated.  It sends no clear message at all, other than of a man struggling with smoke and mirrors.  However fair or unfair this may be, that is how it has seemed to me more than anything else.

And, sadly, I have read similar comments from some high profile economic commentators.  So, overall, I doubt whether it will make much difference to whether people spend, borrow or lend. 

In fact, I suspect that most of us in business are doing our absolute best to maximise our businesses at this time.  Leave us alone Mr Darling.  Most of the people doing that are smarter than you, and because of that the economy will pull through whether VAT is 17.5% or 15%.  Just dont add cost, by changing the rate with only 4 days notice, or putting up NHI, or making the tax system too complicated.

 


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Gibside Associates - a different approach

www.gibside.co.uk

Training for business with, no jargon.      Consultancy that makes you think.      Helping you be deliberately excellent.   

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Kim Clarke
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Posted on 25th Nov 2008 at 15:32

I'm not sure how much of an effect this will have on us. I was reading today that it is the 'perception' the VAT cut will have on people and businesses and in actual fact it won't make that much difference. The government needed to be seen to be doing something drastic with immediate effect.

Whilst a tax cut sounds good in principle - the reality could just create more upheaval in the long run.

Kim


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