The Biggest Tax Subsidy Is Low VAT Rates – Let’s Charge Full Whack On Everything

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HMRC has just released its estimate of what tax reliefs cost the Treasury each year. This is sparking, as it obviously will, demands that some to all of these be closed so that ever more of the economy can flow through government. The thing is, the targets being aimed at are peanuts as opposed to the Great Big Nuts of the system that should be targeted.

By far the largest of these reliefs is VAT rates. And there’s entirely good economic logic for removing those reductions in rates. For what is it that swallows all the money?

Tax relief ‘giveaways’ to wealthy cost Britain at least £4bn a year
Inheritance tax loopholes and entrepreneurs’ relief mostly benefit the rich, critics say

Nope, it’s not that, that’s a rounding error. It’s this:

Analysis of figures published by HM Revenue and Customs on Thursday revealed that the total cost of Britain’s system of tax relief had risen to a record £164bn annually – more than the entire NHS budget.

The biggest tax reliefs are zero or reduced VAT rates on purchases of food and energy, at a cost of about £53bn, followed by an exemption for capital gains tax on properties, worth £27bn, and pensions income tax relief worth £26bn.

Sweden charges VAT on food. And we really shouldn’t be subsidising the consumption of energy now, should we? Not in this world of climate change. In fact, that reduced rate of VAT on energy is part of that $5 trillion we’re said to, globally, use to subsidise fossil fuel consumption. Really, we should stop doing that.

Or maybe we shouldn’t? This being a useful litmus test for those who will try to use these figures. There will indeed be, as there is, shouting about that £4 billion. But that’s as near nothing compared to that £53 billion. So, people who are serious about reducing tax relief so as to reduce austerity – which should they be saying we should do away with? And which will they say we should do away with?

Quite, they’re not being serious, are they? Especially given that climate change part, the VAT subsidy being one of the things they already cry havoc about.