Sunday, October 24

Out with VAT in with LST


The most common objection to the proposal to abolish VAT and introduce a Local Sales Tax ( L S T ) is that most people, quite understandably, do not trust local councils with efficiently raising, and spending a local tax.

The present situation is that local authorities throughout the UK raise about 24% of what they spend through business rates and council tax. The remaining 76 % is given to them by central government. This is currently totals £ 66 billion a year.

VAT raises about £64 billion a year.

Replacing VAT with a Local Sales Tax would amount to a dramatic true devolution of power and accountability to local councils and /or Elected Regional Assemblies.

Central Government would no longer have to raise the £ 64 billion of VAT revenue and then allocate the £ 66 billion in central subsidy to local or regional governments.

One of the most complicated, bureaucratic and burdensome of taxes -VAT - can be abolished and replaced with a simpler Local Sales Tax. The £64,000,000,000 that is collected and then redistributed to local authorities to spend would stop.


Under the proposed new system the local authority's money would be collected locally, by local officials answerable to local councillors who would be responsible to their voters. Much more transparent. So if and when they make a mess of managing it they can be held to accountable by the voters.

Making local government 100 % self-financing would ensure greater local accountability.

Under this change business rates would be scrapped, a clear advantage for small businesses.

Local Authorities would not have freedom to spend as they wanted to since statutory obligations and constrains would, as now, be imposed.


A local sales tax would be too costly and complex to collect ?

No ! A local sales Tax would actually be a lot simpler than the present VAT system.

Whilst VAT is added on (and reclaimed) at each stage of the supply chain a Local Sales Tax would be payable only at the final retail point. There would be none of the complex calculation of VAT liabilities and the form filling needed to reclaim VAT from the government.

A criticism of a local sales tax is that it could be unfair and inflexible. A change in the Local Tax rate say in County Durham of 1 % could make a large difference to peoples shopping bills compared to people say in Northumberland or Tees Valley ( wherever that is). That criticism is fair comment, but has advantages. In the United States, changes of just a fraction of a percent on local tax rates often lead to very heated debate. This of course makes people aware of how a local authority is spending local tax payers money.

So out would go the complex VAT system, as would business rates. Government would no longer have to transfer billions of pounds around the country. If (or perhaps when) local authorities 'balls up' they can pay the price of failure at the ballot box. Better I argue than the present system of VAT.


OK What about the EU ?

As every one knows, or ought to know, VAT replaced the existing UK Purchase Tax regime in 1973, when the UK joined the European Union (then the European Economic Community). The UK's VAT regime is governed by the EU's 6th EC Directive. VAT is important to the EU since 40% of the EU's 'resource funding' is derived from VAT -type taxes within the EU.

Thus to abolish VAT and introduce LPT will require substantial revisions to both the 6th Directive as well as changes to the current EU funding arrangements. Since the Directive is currently subject to review and has been for over 10 years that is not really an option.There must be a better way.

Perhaps that better way is the amicable divorce from the EU I have referred to before. At the same time we can repatriate the UK fishing and agricultural industries.

Better start planning now !

1 comment:

Anonymous said...

What most people don't understand is that major political decisions in the UK are now made by the institutions of the EU ! Excellent point, sir.

Hector.