Debate Magazine

"Coronavirus: Visitors May Not See the Thrill of VAT Cut"

Posted on the 09 July 2020 by Markwadsworth @Mark_Wadsworth

From the BBC:
... experts predict many businesses will not cut prices, instead using the money to save their ailing businesses.

The chancellor said the VAT rate on food, non-alcoholic drink, accommodation and attractions in the UK would be cut to 5% between 15 July and 12 January.
In theory, the rate change could mean a couple buying a pub meal costing £45 without alcohol would save £5.62, while a £54.50 one-night stay at a hotel in a family room would see a saving of £6.81, according to accountants Deloitte.
In practice, venues may decide to keep prices the same, but keep the extra money they would have sent to the tax authority. Providers will not refund those who have booked and paid for accommodation later in the summer, because the rate is for when the sale was made.
Many of these businesses find themselves on the brink, given they were closed for months during lockdown, and the Treasury believes that the choice should remain with these operators, rather than the government, on whether to pass on savings.

Well, firstly, hooray for VAT reductions, the worst tax of all.
We would expect - going by what happened when several European countries reduced VAT for restaurants and small service businesses ten years ago - that prices will not fall by very much, so businesses (and their employees, hopefully) will benefit most.
This is hardly surprising, as VAT on most things is almost entirely borne by businesses. Most spending, and in particular spending on eating out and theme parks is highly discretionary, so consumers are sensitive to prices and businesses have to swallow the VAT when it increases. The reverse applies when VAT is reduced, businesses don't need to drop prices much either.
So the "experts" are shouting about how wicked businesses are, pocketing that tax cut meant to benefit consumers. It would be far simpler to ditch the propaganda that VAT is a "tax on consumption" and admit that VAT is (largely) borne by businesses and their employees.

Back to Featured Articles on Logo Paperblog