UK VAT and exchange rates

[David Kilpatrick]

From Monday, UK VAT will be cut to 15% (a rate it once was) from the current 17.5%. I have a business selling retail items, and I won't be cutting the prices at all. Why? Because £2.50 in £100 is not significant to my buyers, and over the last two years I absorbed over 30% in wholesale/import price rises - therefore, the tiny real difference made to me by the VAT cut is just going a small way to restoring the margins which applied before the shifts in dollar and euro against the pound.

Some items, I will not be able to stock anyway. When the dollar was 2 to the £ and I got a 70% discount on imports from a US vendor, I decided it was still not worth my investing $5000 in stock. Now the dollar is worth 1.5 to the £ it's even less likely I will stock the items involved. My US contact does not understand why even a 70% discount is not enough to make a product viable for direct sale in the UK.

So, don't expect reductions in prices as a result of this. Sony has already announced that prices will go up early in 2009. Large screen TVs currently selling at £599 are likely to be £899 by February; that's the only figure I have been given. Presumably the Alpha system will be similarly affected, but I suspect they have more leeway. The UK Alpha 900 price is already amongst the lowest in the world and the VAT cut will take a further £40 off typical retail prices. Lens prices may be due for cuts as they roll out more glass and stabilise their production levels.

Loads of warehoused stock on which 17.% VAT was paid up to now, will now be sold with only 15% VAT. It's almost a retrospective cut, because the government only gets the money at the final stage, now they will only get 15% on loads of stuff which was in the system at 17.5% for all previous transactions.

David

[Javelin]

Cutting consumption taxes is just a political decision to trick consumers into feeling better. it also only benefits the very rich. Any economist in the world will tell you that. If the Gov is serious about cutting taxes they would do it on income taxes for certain lower tax brackets where it'll make a diference to real people. It's political suicide to come out and say I'm going to cut 2% of the income tax for the richest people in the country. but if they cut the consumption tax then the rich guy can buy his Yacht and save tens of thousands of dollars while the single mom saves 5 cents on a pair of sox for her baby.

Their thinking s that the rich guy will spend more and help the economy. and thats where theres a huge mistake in thinking. the rich guy just invests he doesn't by hardgoods and theres too few of them that if they did buy hardgoods it wouldn't make a differnece. but save that lower income bracked guy 500 bucks in a year and he'll buy a new TV set because the last ones 25 years old.. and theres a lot more copies of him than there are of the other.

[bossel]

From Monday, UK VAT will be cut to 15%

From Monday on? I thought it would be 1.1.2009.... How are companies to reconfigure their (older) IT systems that quickly?

Large screen TVs currently selling at £599 are likely to be £899 by February

Hefty increase. Just decided to keep my old TV a bit longer (though we would like something a bit more modern!).

Loads of warehoused stock on which 17.% VAT

For the stock keeper, it makes no difference (I talk about VAT registered companies). Whatever VAT you paid when bought, you get it back, and you charge to your customer whatever rate is active when you sell.

In any case, I also question the effectiveness of this measure. It might help save a few bucks if I get a new car, makes nearly no difference for the family buying the weekly food supplies As I understood Germany and France (which relies very heavily on VAT) will not adopt this measure.

[Dr. Harout]

Talking about VAT... here it is 20%

[bossel]

Talking about VAT... here it is 20%

France is 19.6 - you "win"

[pakodominguez]

Talking about VAT... here it is 20%

France is 19.6 - you "win"

well, here in NY the tax is 8.375% but isn't because that prices are always more convenient here. Then, you have better roads, schools and health insurance system...(I still prefer living here, and that after 9 years living in France)

[peterottaway]

In Australia the GST ( Goods and Service Tax ) is 10% or actually you multiply the cost before GST by 1/11th. Politics here is more of a spectator sport rather than a mass participation, but try 20% !

Many years ago at uni when studying medieval euro history I cam across a quote that went like this, you can tell whether the city government was in practice oligarchic or popular was by how much of their tax base came from consumption taxes and how much from wealth taxes.

High consumption taxes are as been pointed out are socially regressive to lower income groups,but also may be the result of a governments inability to "harvest" its tax base more effectively.

Things are even worse for many governments if they try income tax cuts, because most countries have flattened their income tax rates from say 6 or 7 tax points to 3 or 4 points. An effective tax rate cut has become very expensive.

[David Kilpatrick]

In another thread the relative price of cameras came up, and it does look as if from a 1972 catalogue, a top end camera (Hasseblad, Nikon, Leica) could cost 1/10th the price of a basic 3-bed home. In the same Wallace Heaton Blue Book I was checking out, are the terms for credit - under government rules, a deposit of 33.3% had to be paid whether for 12, 18 or 24 months 'hire purchase' and there was no longer credit period available. The shop themselves only did hir purchase on items over £37.50 (12 months), £50 (18 months) or £100 (24 months). If you bought anything between £30 and £80 they offered 9 months credit with a 10% deposit but they do not say whether this was free or carried interest - in my recollection, when such deals were free, you paid the full price of every item!

The book includes a full page explaining how you can use your Barclaycard! 'When you order by post... DO NOT send your Barclaycard'

The prices then included 25% purchase tax, the predecessor of VAT. I remember that professionals got purchase tax refunded when I first started keeping accounts for my photographic work in 1974.

I also found some other old catalogues - the original Jan 1st 1975 Leitz General Catalogue of Photographic Equipment, sadly a bit yellowed and with some annotations inside from the time it was in use, and the 1975 Camerart Photo Trade Directory from Japan - that one really IS a keeper - hundreds of forgotten lenses, accessories, brand names and inventions.

David

[bfitzgerald]

I am sure many people won't be reducing prices just because of the VAT rate cut. As David says, for his stuff, it makes little difference anyway.
Onto the big picture, it's only a temporary cut anyway, for 13 months so we are told, and I highly doubt it will in any way encourage spending from consumers. Might make a new car a bit more attractive (if you have the cash!), but for many products, it's not really a substantial saving.

Interestingly, in Eire, they put the VAT up 0.5%, to a nice 21.5% for VAT. Few people I know buy photography stuff (bar the odd cheapie compact), in shops over here, most buy from the UK. VAT has always been an unfair tax, it hits people on low incomes too. And we are all clued in enough to know that the government gets the cash back in other ways!

Side note here, but those from the UK who remember the BSE scares, well we have a nice pork one over here! I don't think we will see many happy farmers about...the Eire economy is probably in worse shape than the UK, this is sure to make it worse...