Daily Telegraph headline 3rd January, above a story warning that retailers will use the VAT rise as cover for bigger price rises.
Daily Telegraph headline 4th January, above a story claiming that “many nervous retail giants said they would either delay implementing the tax hike of 2.5 per cent, or absorb the additional cost themselves.”
All of which highlights the VAT myth – that VAT adds to prices. Of course, it doesn’t. Prices are set by supply and demand in the markets in which retailers operate. It’s the retailers and suppliers who will pay for the VAT rise – if they increase their prices, they’ll sell less, and if they don’t, their margins will be reduced.
Private sector businesses are taking the pain of this tax increase. The State sector, of course, despite all its bleating, won’t be joining in the pain. Its resources will be increased every single year of this parliament under government plans. It just suits the government to pretend it is being tough, so that we won’t complain about the higher taxes.
We aren’t really “all in this together”, as David Cameron has repeatedly claimed. The State sector gets whatever resources it needs, and the private sector pays under threat of imprisonment.
The danger with all the Coalition posturing on this, of course, is that people believe the State sector really is being squeezed, and then people accept the service cuts that will pay for continuing numbers of pointless bureaucrats.
Therefore, it is worth stating again: under Labour, the State sector increased by a million people. Were they all really extra doctors, nurses and teachers? I think not. And by how many will State employment reduce over the next four years under the Coalition? Odds on it won’t be cut at all.