NCPA - National Center for Policy Analysis


March 30, 2010

On January 1st the United Kingdom saw the value-added tax (VAT) increase from 15 percent to 17.5 percent -- one of the legacies of the disastrous administration of Labour Prime Minister Gordon Brown, says Liberty magazine.

  • For those unfamiliar with the tax (and in this case, ignorance is bliss): VAT is essentially a sales tax, but drawn out over the process of production.
  • Instead of the end-user paying the entirety of the tax up front, everybody pays a little chunk of tax along the way -- the manufacturer, the wholesaler, and so on -- as they add "value" to the product.
  • The entire burden of the VAT is still borne by the consumer.

It was heartening to see a number of businesses announce that they would keep their prices the same as they were on December 31, thus absorbing the extra 2.5 percent.  The specific goal of the VAT process is to prevent the formation of black markets.

So what would voters do when elections are called later this year?  Unfortunately, the Prime Minister-in-waiting David Cameron has refused to rule out a further hike in the VAT, up to the European average 20 percent -- a move that will strain budgets across the tax-laden United Kingdom, and test the resolve of businesses trying to square the desires of their customers with the demands of the treasury, says Liberty.

Source: Andrew Ferguson, "Declare the pennies on your eyes" Liberty, April 2010

For text: Liberty Magazine, April 2010.


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