It is time simplify VAT, and if he was advising the government tax epert Dan Neildle says there is a compelling case to be made for abolishing the VAT exemption on food, says Dan Neidle on his Untaxing podcast for the BBC.
He explains in episode 3 of his BBC Untaxing podcast that in 1972 when the tax was introduced it was put on ‘luxury’ items only, but that has had long-term consequences. It means the UK raises some of the lowest levels of consumption tax. because of this political and policy option.
In all the UK raises £180bn form VAT, but another £180bn disappears in all the exemptions and special rates. By scraping the 0% VAT on food the government would raise an additional £25bn in revenue.
Neidle suggested that most of the benefits of the 0% rates of VAT goes to the wealth because they spend more, but increasing the rate would make food and other products more expensive too for those on lower incomes. That, he says, is a problem but not an insurmountable one. You would need to use some of the money raised to support the poorer in society, but the revenue gains would be massively significant.
We could, he suggests, use the revenue raised to reduce VAT across the board to say 17%, or drop the rates a bit less and support those on benefits more. It is something you see in countries like New Zealand and Australia.
Neidle explained putting VAT on food “would make the tax system fairer, more efficient, and raise £25bn.”
Check out episode 3 ‘Jaffa Cake or biscuit?’ at: https://www.bbc.co.uk/sounds/play/m0029j9j
