Wednesday, January 14, 2009

Run for your lives! The politicians are back from holiday!

Today's storm in a teacup about Baroness "Green Shoots" Vadera shows how infantile our politics has become. There'll be gales of hot air on both sides for 24 hours, which is about the attention span that Westminster prefers. Meanwhile the last set of initatives wither on the vine.

I still can't believe that a bunch of supposed grown-ups came up with that hare-brained VAT reduction scheme just a couple of months ago. I was reminded of it this morning when a manager of a chain of clothes shops was on the radio, pointing out, as an aside, that it had made no difference whatsoever to the amount of money coming in. What he would have no doubt added, had he had time, is that the amount of pointless administration it caused far outstripped any benefit it might have brought. I've been in shops where they've been quite honest about the fact that they hadn't bothered. Understandably.

I genuinely find it hard to believe that a bunch of barristers, business consultants, civil servants and professional politicians sat in a room and decided that reducing the rate from 17.5% to 15% was going to make any difference to the consumer. It seems perfectly emblematic of the way that because governments can't do anything to effect the big things (see yesterday's hysteria about social mobility, which has gotten worse despite the efforts of successive governments of different stripes), they fiddle endlessly with the small ones.


  1. Is it fiddling, or an example of the old maxim about camels being racehorses built by committee?

    Incidentally, there was a nice piece on the radio about Obama and change in the US, which in reality is in the same boat, but is surfing a feelgood factor. One furniture chain has developed an ad campaign called 'change begins at home'.

    You've gotta think they'll get out of it before we do...

  2. David Dimbleby explains the fact that he's doing his programme from Washington this week on "expectations being so high" ahead of Obama's inauguration. Which makes me wonder, what kind of credulous infants have any expectations of him beyond the outside chance of his getting re-elected in 2012? What do they honestly think he's going to *do*? Read them a story?

  3. Well, I suppose it's a bit like the joke about the number of psychiatrists you need to change a lightbulb: one, but the bulb's got to want to change.

    It's what they're pinning they're hopes on. But as you say, he can't actually do anything much. He can only be. He's bringing hope to furniture stores so far.

  4. The government doesn't know what to do, but it knows it wants to do it. Latest wheeze, change a centuries old law on the day of a rate cut so it gets overlooked, allowing the covert printing of money. The combination of utter cluelessness and steely cynicism is, you have to admit, impressive. Better get that wheelbarrow out, you're going to need it....

  5. It was a long time ago now that VAT went up from 15% to 17.5%, possibly 1990/1991, but I was working in a shop then and I can assure you we were tasked with raising the prices on every item in the shop overnight. There was also a considerate controversy amongst the general public then, too - an outcry against the cost of their weekly shop going up.

    I wonder what the reaction of the 2009 public and trade would have been to VAT rising from 17.5% to 20%.

  6. Taking the light bulb analogy to give you my favourite - how many classical economists does it take to change a light bulb? None as the invisible hand of the market will do it for them.

    I do think the government needs to intervene in some Keynsian way. I can see some sense in the VAT change - if it is not actioned (eg in restaurants largely) then the profits will be a bit higher (or losses a bit lower) thereby assisting those businesses and increasing corporation tax returns by the back door. Any other measure would have required legislation so would have been slower to implement with as many strange consequences.

    Iand Andy is right - I bet there would have been an outcry if the VAT rate had gone up and not a view that it was tinkering at the edges.

  7. In fact companies which decide - for whatever reason- not to pass it on the VAT cut will get a fairly significant boost.

    A company with a net margin of 10% will see net profit rise by 25%. Leading, you could assume, to more jobs, more investment, higher wages, better returns for shareholders etc.

    If it is passed on, then there is a government-funded 2% drop in prices. I have never studied economics at a high level, but I wonder why many commentators and politicians believe that elasticity of demand does not apply for small reductions in prices.

  8. I work in the IT department of a large retailer, and I can honestly tell you that this was the equivalent of the year 2000 work with 5 days notice. It was weeks and weeks of effort for what was (in our shops anyway) a few pence difference. We then had the thousands of hours of labour in the stores after christmas when the shelf-edge labels had to change. I went out to store for 3 days to help them.

    The worst part of this is that it will be so much worse in 12 months time when (as he has said) the chancellor will revert the VAT rate. When prices go down, you are not legally obliged to advertise the lower price on the shelf edge as long as the price the customer pays at the till is lower. Trading standards get interested if you are charging MORE at the till than is advertised on the shelf. This means that next Christmas, we will be forced to change ALL the price labels in the store BEFORE we can action the prices at the till.

    It's a bloody nightmare and if anyone thinks this is helping anyone, then they should see the mildly bemused look on the customer's face when they see they've saved 4p on their basket of shopping.


    I think it's fair to say that Darling has lost the votes of most retailers.


  9. They do seem incapable of any radical thinking. What they should have done was knock up VAT for online retailers with a turnover of more than X to 40% and dropped VAT completely on the high street, but for a limited time only.

    Dropping VAT to 0 for 1 month would probably cost as much as dropping it by 2.5% for 12 months but might just have saved the high street.