Sunday, 1 May 2011

Vat rise bad news for small businesses.

In August 2009, George Osborne, the then shadow chancellor, appearing on the BBC Radio 4 Today program said "There have been absolutely no internal discussions, there are no secret plans for an increase in the VAT rate,"

Although it wasn’t a surprise to most, that when in power that is exactly what they did, by raising VAT to 20% in January, 2011.

A poll by Premierline Direct in January, revealed that a majority of small and medium sized businesses were concerned about the impact of the VAT rise. The poll showed that, overall, 90 per cent of those running small businesses are worried about the effects of the rise.

The Conservative Party, like to portray themselves as the party of the shopkeeper and defender of small businesses. For instance in the Welsh Conservative manifesto they promise to reduce the tax burden of small business, by abolishing the need for many to pay business rates.

A report in todays Sunday Times; headlined "Vat rise is crushing small businesses", by their economics correspondent, Roberts Watts says “Collapse by small business have risen 20% so far this year, in part because of the coalition’s increase in VAT, insolvency experts have said”.

“A tougher stance by the taxman has also contributed to the rise in failures, which is expected to gather pace as the year progresses”.


As the Conservatives point out, SME’s are vital to the economy, and growth in this sector brought about by an ‘entrepreneurial boom’ was seen as essential if the gamble made by George Osborne, the Chancellor; that the jobs lost in the public sector would be replaced by new jobs in the private sector, was to pay dividends.

Some would point out that Labour also increased the rate of VAT to 17.5% when previously in power.

However, what no political party can deny is that in times of austerity, if you cut taxes in one part of the economy you will need to rise taxes elsewhere.

And for the Conservatives to claim that they are the only political party that would help small business doesn’t quite ring true anymore.

1 comment:

The Red Flag said...

I suspect the true villain in the rise in small business failures is actually a mixture of a tougher stance by the taxman, unemployemnt, less overtime, people on full time being shifted to reduced hours, below inflation (or no) pay rises and the icing in the cake - heavy discounting by major retailers, which is a double-whammy in that smaller outlets have been put in a position of trying to absorb the rise within their profit margins rather than pass it on to the customer.

The VAT rise is not that significant in itself. Something that cost £500 before the rise now costs £510.63 if passed on in full to the customer and if someone was willing to lob out 500 quid on whatever, I don't think another tenner would figure that highly.