Comment by neilwilson
25 days ago
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.
There is more sterling available to FX, which is where the exchange rate is set. The tax flow has been moved one step along. So the uk importer doesn’t pay the tax (on the goods), the uk exporter does (on their staff). That changes the sterling flow across the boundary and shifts the exchange rate. Quite where it settles between importers paying more and exporters receiving more is market/productivity determined.