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Monday, 10 November 2008

VAT proposals not as lunatic as they sound

All the evidence is that firms are hoarding cash. This may be for a couple of reasons; firstly, industry no longer trusts the banks to treat them fairly so future investment or cash-flow cushioning will be funded by saving rather than borrowing, and secondly the recession will create casualties and allow cash-rich firms to snap them up. So tax cuts for business will be unlikely to result in greater investment; firms will just hoard the cash saved.

As with firms so with individuals. Personal tax cuts and low interest rates may well result in taxpayers paying off debt or hoarding cash rather than spending it to stimulate the ailing retail sector. The most effective fiscal measure to keep people in work would be to cut employer's NI, and lower the costs of employment. A cut in VAT is also being mooted as being effective in stimulating retail spending, and suffering sectors such as leisure marine electronics will certainly be expecting to feel the benefit. I'm dubious - see final para.

But EU Referendum has already eloquently pointed out that the government isn't actually allowed to cut VAT without the EU's permission. Which is unlikely to be forthcoming. Now I'll bet the majority of UK taxpayers didn't know that - so it's an excellent hare to set running in the media, to raise expectations and then to place the blame for cruelly demolishing them on the EU.

An EPIRB - Emergency position indicating radio beacon - is really just a toy for the boys if you're a coastal leisure sailor. A DSC VHF is very cheap and will broadcast your position if you press the big red button, so an EPIRB is really only worthwhile if you're going to be out of VHF range of a coast station. Still, it's a nice shiny toy. When the price was over £500, only those with deep pockets could afford the industry standard, the McMurdo Smartfind (RRP £545). Now desperate retailers are knocking them out at £299 including VAT. A cut in VAT from 17.5% to 12.5% would only further reduce the cost to £286; I suspect this wouldn't make a hap'worth of difference to most people's buying decisions.

But some well orchestrated squealing in the MSM about the government's inability to cut VAT will come in very handy indeed.

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