Tuesday, November 25, 2008

Vat ?

I don’t know why Brown didn’t reverse a Tory tax rise (introduced at a time when they were scrabbling for revenue themselves) and remove VAT from building work (it’s levied on all improvements - everything except new build).

It would help the builders - and people usually have to buy things to go in the extension/loft conversion. Plus, bricks, plasterboard and mortar are some of the few things we still produce in the UK.

I can't see a 2.5% cut having much more effect on people's spending than the stamp duty cut had on the housing market.

The BBC (in the form of business correspondent Robert Peston, whose commentariat are a well-informed bunch - the blog's worth reading for the comments alone) are still talking about the crisis as a problem caused by not enough people buying houses at high enough prices :

"at the heart of our economic problems has been this decline in the housing market ... "

It's not a decline, it's a correction. What was amazing is that the boom (fuelled by easy credit, dual income buyers, and City bonuses) lasted so long. It was about four years ago that I started getting invites through the post to buy-to-let seminars. Isn't there a saying to the effect that when the taxi-driver starts giving you share tips it's time to sell ?

If the view of HMG (and Peston seems to have a hot-line to the Treasury) is that declining house prices are the problem, then the only way they'll fix it is by printing money.

(UPDATE - my commenters tell me that Gordo CAN'T scrap VAT on building work - like so many EU things, it's a one-way ratchet. We had an opt-out, but we got rid of it and we can never get it back again. That's also why the VAT cut was to 15%. Apparently the EU won't let us cut any more)

UPDATE - from Peston commenter thinkb4, this :

Dear Mr Brown

Are your debts becoming harder to pay?

Is your over inflated Housing Market in Crisis?

Have your Banks been squandering money at a level that could bring your economy down, but the revenue was good, so you didn't want to meddle?

Are you up a creek without a paddle?

If so, then:

Consolidate your debts into one easy to pay loan from the IMF !

With IMF loans your can delay the inevitable even further and maybe have enough spare for that holiday you promised yourself.

Normally only available to 3rd World Countries, the IMF is now making available Billions to help world leaders secure re election.

Just complete the attached application form and you can turn the "Spend Now, Pay Later" philosophy of the past 10 years into a "Spend Now, Borrow Later, Borrow Again, Pay Much Later" Manifesto for your upcoming campaigns.

PS - Choose your free gift from below:

1. All expenses paid "World Leader Pack", simply attend a gathering of World Leaders, have your photo taken, read the sound bites and take back to your voters credibility as a Global Influencer. (Please note: No decision making commitments necessary, this activity is a mutually beneficial showpiece to help heads of state retain power)

2. Parker Pen Writing Set


Anonymous said...

RE removing VAT fron building work...

We're not allowed to do that. The EU rules governing VAT don't allow governments to newly zero rate or exempt things from VAT, even if they have been so in the past. The lowest rate that can be charged is 5% - and even that requires permission from the EU. Most things have to be at the minimum rate of 15%.

Tim Worstall said...

Gordon actually started the process of getting the EU to agree to this idea back in 2001.

Last week there was a vote on it at ECOFIN which we lost. The finance minister of Slovakia was amongst those who said he didn't want us to do it.

And yes, it's true, if the finance minister of Slovakia says we can't do it then we can't do it.

Stan said...

There isn't now and there never has been a "housing crisis". The so called shortage of houses came at a time when there are a million empty houses in Britain - kept empty by owners who were happy to see the value go up and their rates go down (discounted council tax for empty properties - who came up with that idea?). The fall in property prices is a result - as you say - of a correction. Of course an average house price of quarter of a million quid was unsustainable when the average pay is barely a 10th of that!

Anonymous said...

discounted council tax for empty properties - who came up with that idea?

Stan, is that a rhetorical question or do you not know? Either way I would be interested to know who was responsible for that.

Wyrdtimes said...

You probably know but some of your readers might not... Peston's dad is a Labour peer. So he does have close contacts in high places.

Also explains his blatant bias imo.

Anonymous said...

Laban, You missed one of the main reasons for the housing boom.
Gordon Browns Tax raid on pensions, a lot of people of my dad generation were being advised to invest in property instead as a result. That was the begining of the boom.

Then ofcourse there was Labours attempt to send 50% of school leavers to university along with dramatic increase in immigration, meaning there was no shortage of people seeking property for rent.

I have to disagree with Stan, I don't think there is as much empty property as that, I guess it depends where you live, I am in the Midlands and new build has been going up like crazy and being bought asap in most cases.
Why shouldn't people pay less for an empty property anyway when they are not using the local services?
A more likely problem if we want to take that tac is the government making the benefit system payout more to single people than married or cohabitees, causing couples to live in seperate houses or at least pretend to.

The country has had over 1 million legal immigrants since Labour came to power, ofcourse that has an effect on the availability and therefore price of housing.

Anonymous said...

The country has had over 1 million legal immigrants since Labour came to power, of course that has an effect on the availability and therefore price of housing.

No lesser economic sage than Germaine Greer informed us on an edition of Question Time a year or two back that immigration and housing supply/price are quite unrelated and its racist to even think there might be some tenuous connection. Really how could there be?

How this exemption from the laws of supply and demand is arrived at was, unfortunately, not covered in the show. Time constraints perhaps?