Ed Miliband slams VAT hike
Today sees the standard VAT rate rise from 17.5% to 20%. The 2.5% increase means that tax freedom day is three days later in 2011 on 30 May.
Chancellor George Osborne called the increase "tough but necessary" when he unveiled the hike in the coalition government's emergency budget. He also said that the increase wasn't temporary.
However, opposition leader Ed Milliband has slammed the VAT rises, claiming "this is the wrong tax at the wrong time".
For more on VAT read: VAT rises to 20%
In a speech to Labour activists at the Oldham East & Saddleworth by-election, the Labour leader accused the government of unfairly profiting from a tax that impacts on so many areas of life: "The squeeze designed in Downing Street will come to your street, to the High Street, to every street up and down this country.
"They will be taxing you with higher VAT when you fill up your car. They will be taxing you when you phone home on your mobile. They will be taxing you higher when you go out and get a cup of coffee. And when you pick up a DVD for the kids on the way home they will be taxing you."
With consumers taking into account the VAT increase and reigning in their spending accordingly, retailers fear falling sales in 2011. Nearly two thirds of retailers expect sales to drop off in 2011, according to the British Retail Consortium's (BRC) 'Retail Prospects' survey.
Stephen Robertson, director general of the BRC, says: "They [retailers] believe the VAT rise will contribute to higher prices and, with fears about government cuts and the wider economy, people will be put off spending,"
While retailers may be able to absorb the VAT hike with bumper January sales, they won't be able to do so indefinitely, says BRC economist Richard Lim. "Retailers can't absorb the cost indefinitely. In time, the VAT increase will push inflation up and – along with National Insurance rises and public sector job losses – harm sales as the year continues," he adds.
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Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).