Friday, 8 August 2014

A taxing question

While you may not always agree with him, Wetherspoon’s chairman Tim Martin has to be applauded for being prepared, unlike many of his counterparts, to speak out on the issues facing the brewing and pub industry. However, one campaign on which to my mind he is very wide of the mark is that for a lower rate of VAT to apply to food sales in the hospitality trade. It is claimed that is would give a major boost to employment, but in reality it is ill-considered on a whole range of counts.

The issue is portrayed by its supporters as some kind of unjustified subsidy to supermarkets, whereas in fact a zero rate of VAT has always applied to the vast majority of food sold in shops, whether supermarkets or local traders, and few people would argue that it should be taxed. Fifty years ago, the vast majority of alcohol sales were in the on-trade, but since then the off-trade has steadily gained despite not enjoying any advantage in tax and duty. In contrast, out-of-home dining has mushroomed. It’s possible to argue that, for most alcohol purchases, there’s a realistic choice between the two, but the same is never going to apply to food.

It’s also not comparing like with like. Even if food bought in a shop is zero-rated, to actually eat it you need to take it home, store it (maybe in the fridge), cook it using gas or electricity, provide tables, chairs, plates and cutlery to eat it, and heating and lighting for your room, all of which may be subject to VAT, whereas these things are included in the price of a meal served up in a pub.

It’s hard to argue that out-of-home food is too dear anyway – indeed some people would claim that it is too cheap. There’s a wide variety of food available at all kinds of price points, and would reducing the price of their £9.99 Beef Stroganoff to £8.75 really prove a decision-breaker for many people?

It wouldn’t only be pubs that benefited, either. The hospitality trade encompasses all kinds of cafés, takeaways and restaurants too, so it would be giving a financial boost to your local kebab shop and burger joint as well as, if not more, than pubs. “Unfair tax treatment for McDonald’s” doesn’t somehow sound quite as appealing. It would also be helping the bottom line of three-star restaurants. The well-off tend to eat out more than the poor, and spend a lot more each time, so they would gain the greatest benefit. By definition, the more costly a meal, the higher the VAT element. And, when many food campaigners are complaining that people are less and less often preparing meals from scratch, surely cutting the cost of prepared meals would make them even less likely to cook at home.

It’s always a moot point whether it is better overall to reduce taxes or increase government expenditure, which I don’t propose to go into here. The proposed VAT cut from 20% to 5% on out-of-home eating would undoubtedly be expensive, and, even assuming it is affordable, it’s not difficult to come up with areas where a tax cut might be more widely beneficial. Two obvious examples are a smaller reduction in the general rate of VAT, and increasing the income tax threshold. And, if encouraging employment is the main objective, then that would be better addressed by either increasing the threshold or reducing the rate of employers’ National Insurance contributions.

The conclusion must be that this is a superficially appealing but poorly thought out idea that is a classic example of special pleading, wanting tax favours for businesses you happen to think are deserving. Even if money was available for tax cuts, it would be much better spent elsewhere.

20 comments:

  1. No sympathy for the smug twat. He should be relying on all his new non smoking customers he thought would turn up when he supported the smoking ban.

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  2. We need to double VAT on pubs and keep doubling it. Give the money to the people and families destroyed by the demon drink.

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  3. The Festering Old Gentleman8 August 2014 at 16:18

    So we'll all brew and distil our own, then...

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  4. Tim Martin is a grandstander. He uses the VAT and other issues to promote his business, not because he wants to improve economic conditions for the trade as a whole.

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  5. I have no strong view on this, but I'd point out that some other European countries apply a lower rate of VAT to the hospitality industry, so the idea isn't one Tim Martin has dreamt up, although - to be fair - he has never claimed he did. However, I am surprised, Curmudgeon, seeing an avowed libertarian standing on the side of higher taxation by the state.

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  6. What a load of top class bullshit coming from a backstabber who supported a measure which has shut over 22,000 venues ,losing 100,000+ jobs. Lets be honest,his
    licensed burger bars have survived on the closures and destruction of pubs and clubs near to his morgues and necropolises. If non food pubs had been allowed a choice (as was stated in the 2005 Labour Manifesto) this two timer would hae been singing another tune.

    Hengist's Lot

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  7. @RedNev - as I said, I'm deliberately steering clear of that argument. But, if you are going to cut taxes, there are many better ways of doing it.

    This piece by PMA editor Rob Willock is an interesting riposte to Timbo's proposals. See the comment at the end about him not standing up for the majority of licensees at the time the smoking ban was being proposed.

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  8. Timbo makes a poor case of special pleading. Eating out is a luxury, eating is a necessity, hence the former is vatable and the latter isn’t.

    A better approach is to question the level of VAT and question whether a lower VAT rate would increase tax revenues. The good old laffer curve. Many lefties dismiss the laffer curve but if tax isn’t a disincentive to economic activity why tax tax fags and booze ?

    As far as I can see the government are sticking with 20% for the foreseeable because the increase from 17.5 increased revenues and the government needs it, what with the last labour government bankrupting the country.

    If reducing VAT increased revenues then it would be done, but on everything. Pubs are no special case. People like all manner of things and it is possible a VAT cut would boost all sectors.

    The best case for a VAT cut is self employed tradesmen. 20% is a good reason to ask the plumber “how do you want paying, cash?” “yeh mate, I’ll knock the VAT off” Would people bother to evade tax for small jobs if it was 5%?

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  9. @Cookie *who* bankrupted the country? I thought that was something to do with the old Global Financial Crisis. My memory's not what it was, but I'm pretty sure the labour government wasn't running the USA, the Bundesrepublik, or the Russian Fed.

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  10. The Labour government was running a budget deficit even at the height of the mid-00s boom, which left them woefully ill-prepared for the crash to come.

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  11. @Stringer

    Labour governments always bankrupt the country. It is the one thing they are most efficient at. Usually it takes them 1 term. It took the last lot 3 terms but they got there, eventually. Ed will do better, he'll manage it in 18 months tops.

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  12. There is nothing basically wrong with the Labour Party and it's traditional values,what destroys it's claim to Democracy and Liberty are the degenerates ,backstabbers and Quislings who use it for personal ambition and clique causes
    The smoking ban was a perfect example of it's contempt for the working class and it's servile obedience to the liberal London elite.
    Sadly there are still many blindfolded and earmuffed idiots who still vote for them.


    Cosa Saxonia


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  13. seems an odd link to take not to support Tims VAT stance, because he was pro the smoking ban, and there seems to be a bit of personal emnity involved with the MA and Tim which undermines their whole actually cutting VAT is bad because...argument, as it just comes across as its bad because he called a guy a name he had to look up on the internet.

    the VAT rules arent fair on most businesses, the cost to storing heating preparing your food isnt meant to have anything to do with VAT, that should all be built into the cost of the thing you are buying excluding VAT in the first place, vat is meant to be just a simpler way of paying and collecting a sales tax. but then you have this absurd situation where you can buy hotly prepared food to eat and take away (which has included all the storage, preparation part) and its vat free, all because the tabloids got in a tizz on the pasty tax and politicians started falling over themselves to have photo ops eating pies.

    curiously I think Tim would probably be just as happy to support raising VAT on supermarkets to 20%, which kind of torpedos the whole we cant cut it because we'd lose money excuse,as 15% on the billions supermarkets make would plug most financial black holes :) it would of course be deeply unpopular, but Tims argument isnt just lets cut tax (Wetherspoons business is in good shape and reasonably able to cope with the tax burden), its this tax is unfair and creates an unbalanced market, supermarkets can undercut the sale costs of alcohol which puts them at a significant price advantage in the stay at home crowd, who jeopardise pubs viability or the pre-loaders, who then travel into town and become the pubs problems and they then get clouted with all those additional night time tax levies as well to clear up the alleged problems.

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  14. Oh, I'm not averse to tax cuts as such, just that I think there would be many other things to cut that would be more beneficial across the board.

    As well as the ones I mentioned, I'd add:

    * an across-the-board cut in alcohol and tobacco duties
    * a substantial increase in the 40% income tax threshold
    * a cut in fuel duties
    * removing the absurd "allowance restriction" on higher earners
    * increasing the inheritance tax threshold to £1 million
    * a wholesale reform of stamp duty on property sales

    In fact there's a decent argument for applying the same rate of VAT to *everything*, which would allow the headline rate to be cut, but just imagine the howls of rage if it was proposed to apply it to food, books and children's clothes.

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  15. @cookie, you seem to have forgotten the post-war Labour gov, the one 50-51, and the labour govs 64-70, all periods of surplus. So no, not "always".

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  16. I seem to recall the Attlee government having to go cap-in-hand to the Americans for a loan, and both Attlee and Wilson being forced to devalue the pound. Wilson's devaluation, even if necessary, came across as a huge blow to his credibility.

    They may not quite have bankrupted the country, but both certainly made a mess of economic management.

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  17. @mudgie, you're blaming the labour government for the war debt? Seriously?

    As for devaluations, these are always going to be politically troubling if arguably sound economic moves.

    As far as taxation goes, personally, it's an irrelevance. If they tax your income it's money you never really have, if they tax your spending it's money you don't anymore have to spend. Net result? You don't actually have as much money as you thought (they told you that) you had. Economically, it's just some levers for the gov to tweak the money supply. Nothing to do with us.

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  18. Personally I'd rather have the money in my pocket than the government's.

    And, if you're supremely indifferent to tax rates, I assume you're voluntarily paying a few percentage points each month over to the government. Oh, you're not??

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  19. Your comment that you were indifferent to tax rates suggests you are either a moron or a well-off champagne socialist.

    Of course you live with it, but you're still acutely conscious of how much the government is taking.

    "The government takes half my salary, but it's money I never really have, so I'm not bothered."

    Bollocks.

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