VAT increase to 20% would be “intently regressive”

Despite reports on the BBC that the Tories have “absolutely no plans” to introduce a 20% rate of VAT, City AM this morning quotes a Conservative Party spokesman saying they “could not rule out the move.”

Analysis by Left Foot Forward – based on figures from the Office of National Statistics (Table 3) – outline the distributional impact of a VAT rise of 17.5% to 20% on disposable income. The policy would mean that the poorest fifth of the population would spend a total of 13.8% of their disposable income on VAT, up 1.7 percentage points. This is more than twice as much as the richest fifth would spend of their disposable income. Some of this would be mitigated by rises in benefit and tax credit levels but the outcome would remain regressive.

Writing on his blog earlier today, Richard Murphy – founder of the Tax Justice Network – said:

“VAT is intently regressive – meaning that the burden of the tax falls much more heavily on low earnings households than it does on those with higher income.”

1. Tory business tax cuts threaten public services and poorest | Left Foot Forward says:

   November 23, 2009 at 11:02 am

   [...] regressive” move which would fall disproportionately on the poorest as Left Foot Forward has previously shown. The alternative is further public spending cuts. As Adam Lent at Touchstone asks: “Is this [...]
2. John77 says:

   December 7, 2009 at 7:47 pm

   Your data is (i) misleading because the bottom fifth at any one moment are spending more than their current income – they include a lot of retired people living off their savings and those temporarily unemployed so “disposable income” is not the same as money available to be spent (ii) just plain wrong because ONS admit that their data excludes one-third of the sum handed out by HMRC in tax credits. VAT is 7.9%, 7.9%, 7.8%, 7.7%, 7.1% of expenditure. The truly regressive tax is tobacco duty
3. Top earners pay more, and so they should | Left Foot Forward says:

   December 8, 2009 at 2:21 pm

   [...] because of the existence of regressive consumption taxes, which unite Left Foot Forward and Guido Fawkes in opposition, the poorest have the highest overall tax [...]
4. Pigou versus Progress « Left Outside says:

   January 20, 2010 at 11:09 pm

   [...] because of the existence of regressive consumption taxes, which unite Left Foot Forward and Guido Fawkes in opposition, the poorest have the highest overall tax burden. The richest get [...]