Comment by neilwilson
13 days ago
Vat is stupidly complex. Try doing an international conference for example. Not to mention the impact on imports as the OP discovered.
Quite why people think tax stays in one place is beyond me - all costs are passed on and tax is no different. Putting the tax on employer NiCS for example would result in roughly the same business collection and payment, but with a significant reduction in administration and the tax gap since PAYE collection is more efficient.
And quite why obtaining foreign items more expensive is seen as a negotiating point could only be brought up by somebody who hasn’t thought through how floating exchange rates work. We want more stuff coming in and less going out. That’s how you win in international trade. Exports are a cost remember.
As we see from the US, it is the local population that pays the cost of import tariffs and taxes. The currency exchange rate fixes the rest.
A single country's tax policies don't exist in a vacuum. Let's take as an example a new car that costs £36,000 including 20% VAT. If the UK removed VAT and put the cost on employer NICS then British built cars would still cost roughly £36,000 but foreign built cars would now cost £30,000 and what little of the British car industry is left after Brexit quickly ceases to exist as the multinational companies that run them shift production elsewhere to remain price competitive.
Trump's broad based tariffs are dumb because much of what is being tariffed is not really manufactured in the US anyway. But used in a more targeted manner they can help ensure a level playing field for your country's products in the countries you have trade agreements with. Otherwise what incentive is there for another country to negotiate a trade agreement that gives equal access to says cars manufactured in either country?
Fixed exchange rate thinking I’m afraid. Try it again but with a floating exchange rate - understanding that importers into a currency area pay the local area costs of exporters from that currency area. Reducing the tax thereby means there is more sterling available for exporters to earn.
You will find then that the exchange value is a function of productivity not currency numbers.
Moving VAT to employers NICs will impact those operations that use a lot of labour and few machines. That favours those operations that have higher productivity.
Therefore the physical cost of exports will reduce and the value of imports to the local population increase.
If that reduces the number of exporters then that is of benefit to the nation, as there are more people available to work on domestic production.
With floating exchange rates you don’t need “trade deals”. The exchange rate sorts it all out for you.
Putting rocks in your own harbour is always a silly idea. If other nations play dumping games then you fix that with subsidies not tariffs.
There is no more sterling available because the tax burden has just been shifted from VAT to employer NICs.
1 reply →