Wednesday, January 21, 2009

VAT receipts collapse

The VAT cut might not have kept us shopping, but it did a number on public finances. December VAT collection was down a billion quid compared to the previous Christmas.

We can't blame it all on Darling's 2.5 percent reduction. The actual fall in receipts was closer to 20 percent. Nevertheless, we can conclude that the tax cut did nothing to halt the calamitous decline of the UK economy.

It would have been better if Darling had done nothing. At least, he would have received a little more cash to cover the losses from the financial sector.


  1. The VAT cut was from 17.5% to 15.0%. While the consumer does save 2.5% of the purchase price, the government receives 14.3% less VAT revenue, all things remaining equal. This is because 2.5% / 17.5% is 14.3%. Lower prices and lessened consumption can explain the rest of the VAT receipts decrease.

  2. Alvin,

    You are, of course, right. Thank you for your comment. However, I liked the angry tone of my post. I hope you won't get too upset if I don't change it.


  3. 1/ The VAT cut was good.
    2/ They shouldn't bail out banks.
    3/ IMHO Only.

  4. To be fair, they had pencilled in a £12.5 billion 'cost', or 'saving', looking at it from producer/shop/customer point of view, so £1 bn in a month is about right.

    BTW, VAT is The Worst Tax, so even if they cut it for the wrong reasons, it was still A Good Thing.

  5. Big increase in public debt also in December - a chart please?

  6. I'm just an ignoramus, but how can they possibly know what the December VAT take is? Returns and payments aren't due until 31st January.