Zoë Williams gets it right on VAT

Well nearly, but she's done some proper homework. From The Guardian:

News of the government’s plans surfaced, as they always do these days, in a private briefing – that the chancellor, Rishi Sunak, plans to slash VAT, in an emergency measure to stimulate spending and boost the post-Covid economy, from 20% to 17%.

Which is much to be welcomed, sales or turnover taxes are the worst kind of tax; VAT is very literally a tax on "value added" (wages and business' earned profits), not some harmless tax on "consumption".

The EU, over time, set a minimum level of 15%, except in special circumstances – which, considering sales tax was previously set at 10%, even by a Conservative administration in 1973, made the EU the driver of an essentially anti-progressive policy. It’s a useful, if tangential thing to remember, for the despairing remainer: the EU wasn’t perfect.

Which was one of the main reasons I voted Leave.

Yet in special circumstances, an individual nation could insist on a lower rate for VAT: Alistair Darling didn’t need to, following the financial crisis in 2008, since he just wanted to reduce the rate from 17.5% to the minimum 15%.

You really had to be there to remember the ridicule this generated. It was piecemeal, it was pathetic, yet at the same time it was crazily expensive and horrifyingly risky. It was the act of a chancellor who didn’t know how much trouble the nation was in, but also one who panicked and couldn’t keep his head.

I remember nothing of the sort. Darling said he'd reduce it for 13 months. I cheered at the time, and this was one of two tax-tweaks which softened the blow of the 2008-09 financial recession. The other was reducing the number and generosity of Business Rates exemptions for vacant premises. The Tories got in and increased the rate again after the 13 months were over (the idiots).

In 2009, the Institute for Fiscal Studies, among many others, judged [Darling's VAT cut] to have been a significant success..."

As well they might, because it was. With VAT you can hardly go wrong if you're reducing it.

The same people who ridiculed Darling will now be praising Sunak as a visionary.

And you, Zoë, are praising Darling while slagging off Sunak for doing a similar thing. That's what the media do. They're cheerleaders for one side or the other. It's about as enlightening as listening to football fans arguing about why they support different teams, which are basically all the same.

VAT in its early years was a manifest statement of political intent: Labour chancellors kept the base rate very low, then went wild with the luxury rate (Denis Healey at one point had the higher rate at 25%). Conservative chancellors would then come in and “harmonise”, and this was a classic framing triumph: who could possibly disagree with bringing harmony?

Yet, of course, it meant saddling the general population with a tax that was previously weighted for the broad-shouldered.

This is only correct if you assume that VAT is borne by the consumer, which it isn't (unless demand for something is price inelastic, like booze, fags, fuel). The real damage that VAT does is acting like a domestic tariff and hence a huge brake on the economy.

VAT puts (or keeps) businesses out of business and puts (or keeps) people out of work. The unemployed probably don't pay much VAT, but half of them are unemployed simply because of VAT.