Monday, 24 November 2008

Giving with one hand...

How typical of Alastair Darling to cut VAT as an economic sweetener, but at the same time increase duty on alcohol, tobacco and road fuel to offset the shortfall. Alcohol duties have gone up by a whacking 8%. Given that food and books and newspapers are zero-rated and domestic fuel already has a lower VAT rate of 5%, there’s very little left that people buy on a day-to-day basis that is actually subject to VAT. If people are worried about their job prospects, they’re hardly going to be tempted to splurge on a new car or kitchen by a 2.5% price cut. And what’s the betting that, when the VAT rate reverts to 17.5%, the duty rates won’t be reduced back to where they started?

It would have been welcome if people were given a bit of Christmas cheer from a temporary reduction in the price of drink, but obviously that does not fit with the joyless agenda of the New Puritans. Indeed, while the duty hike has been presented as simply maintaining the retail price, in many cases, particularly spirits, it will actually increase the price in the shops. Also, given the way pub licensees often work out retail price by applying a mark-up to the wholesale price, it could easily end up putting prices up in pubs too.

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