Declare the Pennies on Your Eyes

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January 1 in the United Kingdom saw the value-added tax (VAT) increase from 15% to 17% – one of the legacies of the disastrous administration of Labour PM Gordon Brown.

For those unfamiliar with the tax (and in this case, ignorance is bliss): VAT is essentially a sales tax, but drawn out over the process of production. So instead of the end-user paying the entirety of the tax up front, everybody pays a little chunk of tax along the way – the manufacturer, the wholesaler, and so on – as they add “value” to the product. The specific goal of this Byzantine process is to prevent the formation of black markets: while endpoint sales taxes can’t be raised much higher than 100/0 before even the most civic-minded citizens start looking for ways around them, with a gradual tax they can get away with 15%, 200/0, or even more.

Of course, as everyone acknowledges, the entire burden of the VAT is still borne by the consumer. So it was heartening to see a number of businesses here, from department stores to furniture outlets to cafes, announce that they would keep their prices the same as they were on December 31, thus absorbing the extra 2.50/0: a sign on one sandwich shop boldly proclaimed they were “saying ‘No!’ to Gordon Brown.”

Shrewd, too, as saying “No” to Brown is what most voters are expected to do when elections are called later this year. Unfortunately, the PM-in-waiting David Cameron has refused to rule out a further hike in the VAT, up to the European average 20% – a move that will strain budgets across the tax-laden UK, and test the resolve of businesses trying to square the desires of their customers with the demands of the treasury.

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