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Tuesday, August 17, 2010

What is the cost of the VAT rise?

This morning's Western Mail reports that the Welsh health service expects to lose more than £20m next year because of the Government's increase in VAT. However, I have difficulty believing the accuracy of the Welsh Government's figure in the light of the answer they gave to Kirsty Williams back in January 2009.

At that time she asked the Finance Minister how much money the Welsh Assembly Government will save as a result of the then 2.5% cut in VAT. The answer was that the Welsh Government estimates that it will save £1.4m in the current financial year, and about £4.5m over the whole of the planned period of the reduced rate of VAT (1 December 2008 to 31 December 2009).

They said that these savings have not been taken centrally and will therefore benefit departments directly.

They went on to say that most Welsh Government expenditure is on grants of one sort or another, which are outside the scope of VAT in any case.

So according to Labour and Plaid Cymru Ministers a 2.5% cut in VAT produces savings of £4.5 million whereas a 2.5% increase delivered by a Government of a different colour to them will cost £20 million. This looks to me to be more of a political answer than a factual one. You would think that they could have got their story straight.
I saw the Western Mail too, and as someone who pays VAT on supplies for my business, but doesn't charge VAT to disabled customers, I can say with some certainty that a VAT rise should cost the NHS absolutely SOD ALL. Fact is, if you're VAT registered as an organisation, you can reclaim VAT on your purchases from HMRC. There shouldn't even be any interest lost as you can reclaim monthly.
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