IMF criticises the UK’s VAT cut

December 23, 2008

BBC reports on the criticism by the IMF on the UK VAT cut.

An International Monetary Fund (IMF) economist has criticised the UK’s 2.5-percentage-point cut in spending taxes.

Olivier Blanchard, the IMF’s chief economist, said that the temporary cut in VAT would not significantly influence shoppers’ behaviour.

Has the 2.5% cut in VAT made an impact on consumer spending? When you consider the 20-50% reductions we are currently seeing on the high street, will a 2.13% cut on prices as a result of the 2.5% reduction in VAT actually make a difference?

If an £117.50 iPod is now just £115.00 will saving £2.50 make me go out and buy one, more than likely no!

However the overall savings I make across buying stuff with VAT may allow me to spend more.

Though problem is that most of the stuff people spend their income on, food and mortgages, don’t have VAT!

Interesting to see if the cut has any effect whatsoever.


Pringles are “not crisps”

July 5, 2008

BBC reports on a court ruling which says that Pringles are not crisps.

Pringles are not crisps

Pringles, the popular snack food in a tube, are not potato crisps, a High Court judge has ruled.

Their packaging, “unnatural shape” and the fact that the potato content is less than 50% helped Mr Justice Warren make his crunch decision.

So why is this important?

As a result, Pringles, in all flavours are free from Value Added Tax (VAT).

Now the end result is that Pringles can be sold for less (well about 15% less mathematically) as you no longer need to charge VAT at 17.5%.

If the price is less this means the quantity demanded will probably rise and more profit for the manufacturer Procter & Gamble.

The tax environment is a complex environment in which businesses need to operate and many organisations try and reduce their tax burden by finding “loopholes” in the tax laws.

Photo source.