Wednesday, January 05, 2011

How hard does the VAT increase hit?

Well the short answer is it depends on how much you spend on what.

However I have seen some fascinating rubbish on the issue.

VAT is going up 2 and 1/2 pennies in the pound, but this rate does not apply to food*, rent, mortgages, domestic gas and electricity, children's clothes, books and newspapers. It does apply to petrol, cigarettes and alcohol**, food at restaurants etc.

So how much do you spend on VATable goods a week that will be going up?

To give you some idea, to beat the £1.30 a week extra some are claiming the poorest would have to pay in VAT you would have to be spending £52 a week on goods and services which attract VAT at the full rate. This does not include heating, lighting, food, children's clothes.

Some say it will hit the "average" family by £300 a year. That is paying £5.77 a week extra in VAT or, in terms of spending on VATable goods and services, £231 a week. This is where I really start to scratch my head as I just can see that level of income after I have paid for things like the house, the bills council tax and food all of which is not vatable. In fact if you look at it, that applies to a household income of £23 K (presumably after tax) which equates to a weekly income of £442. Is anyone seriously suggesting that a household with that level of income is blowing well over half of it on VATable goods? That would leave only £211 a week (£915) to pay for the house, council tax, utility bills (excluding telephone which is charged at the full rate) and food. Credible? I don't think so.

That said I would rather tax wasn't going up, but then I would rather not have had 13 years of a Labour government flying the economy into the ground whilst pushing up public sector inflation through the roof.

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