We still pay the tax imposed by the EU and it kills businesses and cripples households COMMENT | Express commentary | Comment
We must permanently break away from the outdated and inadequate regulations that we adopted when we joined the EU in order to better adapt our growing economy to the problems we face. Get Britain Out has identified and argued for months that there is one of those areas of regulation where a decision to break with the status quo would help reinvigorate our economy, to the benefit of businesses and normal people – taxation – and more specifically. VAT. VAT (value added tax) was first introduced in the UK in 1973, as a condition of membership in the European Economic Community (as was the case at the time), with a minimum rate of 10% fixed by Brussels.
This minimum set by the EU then rose to 15 per cent in 2007 – although the UK government has consistently chosen to exceed this minimum with a rate of 17.5 per cent since 1991 (to help offset the abolition of the community tax) and in 2011 UK VAT was increased to its current rate of 20%.
The main area where this reduction should be implemented is in household fuel bills.
Not only is a reduced rate of 5% VAT currently applied, but these invoices are also already subject to additional taxes and levies to pay for the green “Net Zero” program.
VAT was supposed to be levied on “non-essential / luxury goods” so how is heating your home in winter considered non-essential?
Not only would a reduction in VAT levied on commodities – like household bills – help lower costs for consumers, it would also lower costs for businesses.
These are savings that could then be directly allocated to hiring additional staff or investing in new technologies to improve efficiency and innovation.
The tax system in the UK in general is already far too complicated, and at the moment Chancellor Rishi Sunak’s sole aim appears to be to raise taxes on young people, as well as to penalize savers and retirees.
It does nothing to help stimulate our economy and takes away the ability of our businesses to focus on new ideas and innovation within Global Britain.
The government has already accepted that lowering VAT is a good idea to encourage investment in industry and consumer spending.
Last year, to encourage people to go out and spend money, the government temporarily reduced the VAT in the hospitality sector from 20% to 5%. However, although the program is clearly working to help support industry, advance growth and help reduce inflation – according to the Treasury – the government still insists these cuts are temporary, focusing only on the return to the status quo as soon as possible, rather than trying to bring about permanent reform.
Since and before the 2016 EU referendum, Get Britain Out and other pro-Brexit campaigns have produced report after report identifying areas of EU regulation that the UK should free itself from.
However, despite this plethora of information and experiences at their disposal, those in Whitehall have shown no interest in implementing any meaningful change.
VAT compliance costs the average business four percent of its turnover. This is a significant amount for small businesses who are desperately trying to stay afloat in the current economic climate – but the government continues to sit on its hands.
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It seems to be content with a system that, as of 2017, was spread across 42 laws and 132 regulatory texts, with no doubt many more added throughout the pandemic.
How is such a complicated system viable?
Even if the government’s refusal to cut VAT rates – or abolish this tax altogether – is to try to top up the treasury coffers after the pandemic, surely at a time when interest rates are at record highs, Shouldn’t we be focusing on lowering the costs of living and helping the country achieve optimal growth as we venture out into the larger world as a global Britain?
In fiscal year 2019-2020 (the most recent year available), the UK had a VAT gap of £ 12.8 billion (the difference between the actual amount of VAT collected and the theoretical tax payable), which is equivalent to 8.4% of potential VAT revenue.
Is this really a hole in our budget that is not worth working on closing?
Instead of choosing to simplify our tax system, we continue to trudge ahead, happy to stay aligned with what has become the norm under EU regulations. Too often, the government has ignored the chances of breaking with the EU status quo.
Is it just not wanting to rock the boat – or just being too lazy to make changes and come up with our own ideas? “
The UK tax system needs to be reformed and the government should either abolish VAT or introduce VAT reform if we are to get the most out of Brexit.