Opine

[oh-pahyn]

–vb/ to hold or express an opinion.

[Origin: 1575–85; < L opīnārī to think, deem]

 

 

 
Text Box: When one takes into account that the high street mainstays are already chopping prices by 20% or more in the run up to Christmas, a small reduction in VAT does not seem like much at all. All of this is true, of course. It’s just a pity nobody thought to turn the penny over. Had they done so, it may have dropped. The VAT cut is nice for consumers, but it’s a lifeline for small businesses. Firming up the bottom line of these companies for a year or so will directly improve their financial wellbeing. If employers feel under less pressure, this can only be a good thing for job security. If people keep their jobs they will keep on spending, if not at astronomical rates. After all if headlines say taxes are down and the goods on the shelves look a little cheaper than yesterday then, Messrs Brown and Darling will think, that’s no bad thing. See also: The wheels come off Karma chameleon comment@opine-blog.com 25 November, 2008 - Bridge over the River Kwai says: I agree with the author insofar as I also don't believe a 13-month 2.5% VAT cut is going get every U.K. consumer out there buying expensive trinkets. But could you explain why a VAT cut is so important to small businesses?   I thought VAT is a consumption tax, paid by consumers when they consume goods/services. Meanwhile don't businesses write off the VAT they pay on the goods they require to operate their business anyway? I understood that small businesses subtract the amount of VAT they've paid in receipts from the VAT they've charged in invoices and pay the difference.   If that is the case, wouldn't businesses be in exactly the same situation because they're charging 2.5% less in VAT, as well as paying 2.5% less in VAT?   Also, it means that some retailers will have to re-price every item they sell after the changes come into effect next Monday, costing them extra money – Argos were days away from printing their January 09 catalogue when the PBR was announced. Luckily they escaped having to pulp thousands of catalogues – others weren’t so lucky.   The planned deferral in corporation tax increases for small firms will no doubt be welcomed, as will once-profitable companies being able to write off up to £50,000 in losses.   But come 2011, businesses will have to pay higher national insurance on employees, when unemployment levels during this current recession are expected to be at their highest. That is hardly going to motivate managers to take on new staff   Aside from that, I would have thought a much more important issue is the £118 billion worth of borrowing the government is planning to do over the next two years.   With the fastest increase in public debt in peace time, it's hoping to prop up an economy in recession until a time when it has been forecast the economy is likely to be growing again.   Forgive me if a gamble of that scale doesn't motivate me into taking out a credit card and buying a brand new TV – which incidentally seems to be the consumer appliance of choice for pundits and commentators everywhere – regardless of how much VAT I'll save.   Furthermore Darling's pre-budget report has basically stretched the limits of New Labour's economic policy to breaking point.   Paving the way for a fiscal deficit not seen since the 1970s (whenever that was, I'm too young to know) by abolishing Gordon Brown's fiscal rules.   Let's not forget proposals to lower public spending – something which New Labour criticised the Tories for implementing during leaner economic times – and yet something the Labour government is now faced with doing.   Again, all a bit before my time, but I've been reading it everywhere. 25 November - Flern Gnu says: Can’t comment on the rest of it but regarding public spending cuts, the opposite is true. The government is bringing forward a couple of major public infrastructure programmes as well as raising both the state pension (above inflation) and Child Benefit. 26 November - The Horse Whisperer says: This is not about how much VAT will be paid by businesses. The reason for adjusting VAT is to help shore up the bottom line of retail firms. Prices, which as has been pointed out are being cut rapidly by increasingly desperate retailers, are unlikely to be reduced to take into account a 2.5% drop in VAT. It is instead more likely that prices will remain as they are, with less of the price being made up of VAT and more being the selling price set by the retailer. This cut, which would be unlikely to be noticed by a consumer purchasing a single product, could make a difference to retailers given the volumes they deal with. While this cut alone is not going to make a huge difference, it is when all the measures are taken as a whole – more money in consumers’ pockets from the extension of the income tax cut, deferred tax payments for business, increased and front-loaded public capital expenditure programme – that the impact will be seen. As for the issue of government borrowing, it is certainly a major concern that it will be increasing so heavily. Given the peril we find ourselves in, however, doing nothing is not a viable alternative. 25 November, 2008 - Bridge over the River Kwai says: Re: Flern Gnu Fair point on the public spending on infrastructure projects being brought forward, and an extra £5.25 per week on the basic state pension. However, an Institute for Fiscal Studies (IFS) report today that said total spending is only due to grow by 1.1% a year in real terms from April 2011 to March 2014, meaning a reduction of total spending by 2.5% of national income, equal to £37 billion in today's terms. Granted that will come in after the next election, but this government will still be responsible. The same report also included this quote from Alistair Darling in March 2005: "The Conservative Party is committed to making cash cuts of £35 billion from Labour's public spending plans – cuts so large they could only be found from cutting deep into front-line public services, including schools, hospitals and the police." The IFS claims to be politically independent, but admittedly it might be naïve to agree with that claim, especially given the inclusion of the above quote. However, if it is accurate in its analysis, then how are Labour going to reduce public spending by £37 billion in the next few years without reducing public spending? 27 November - Knickers, Old Sock! says: It’s a convincing point, but in light of recent similar situations – the banks not passing on the cut in the base rate to consumers; oil companies doing little to reflect the reduction in oil prices at the petrol pump – where the parties involved eventually crumbled under public and governmental pressure, it seems difficult to believe that large brand retailers will be willing to incur the cost to their PR standing which would undoubtedly be the result of not passing on the VAT decrease in full (although they might cut 2.5%, not 2.9% and so pocket 0.4% without consumers noticing). Nevertheless, it does seem more than likely that small businesses will be able to maintain prices. The cut should filter through to have a positive impact on job security (NI issues aside). Accordingly, it has much more of a chance than some commentators are willing to afford it to successfully contribute towards wider efforts to deal with recession. I love Opine!!

24 November, 2008

The penny drops

 

Alistair Darling has taken his scalpel to the British economy in his Pre-Budget Report and sliced neatly a 2.5% chunk off the rate of VAT.

 

As the torrents of ‘leaked’ information came spilling out last week, and in the febrile analysis this afternoon, commentators everywhere have denounced it - and with good reason.

 

It will cost £12.5 billion – which will have to be filled by yet more borrowing – and for what? If the television that cost £550 is now priced at £538, is the average consumer really likely to go and buy it, propping up the consumer economy as he does so? Probably not.

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