Why VAT really does hit the poorest hardest

The data that proves Osborne was wrong to describe VAT as a "progressive" tax.

If you look at the population and how much they spend, then VAT is progressive

George Osborne, Today programme, 4 January 2011

When George Osborne rose VAT to 20 per cent in his emergency Budget, I, like others, warned not only that the tax rise would prove economically defective - it is expected to reduce annual growth by 0.3 per cent - but also that it would hit the poorest hardest. As a regressive tax that takes no account of income, VAT inevitably squeezes low earners.

But despite all evidence to the contrary, Osborne insisted that VAT was a "progressive" tax. On 4 January 2011, the day that VAT rose to a record high of 20 per cent, he told the Today programme:

If you look at the population and how much they spend, then VAT is progressive...Income tax and National Insurance would have a more damaging impact on poorer people in our society

The data, however, tells a different story. The number crunchers at the Office for National Statistics have published a new report showing that the poorest fifth of UK households pay significantly more in VAT as a percentage of their disposable income than the richest fifth. As the graph below shows, the poorest fifth spend nearly 10 per cent of their disposable income in VAT compared with 5 per cent for the richest households.

Average household VAT as a proportion of household disposable income

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The effect of the 2.5 per cent rise in VAT was not included in the analysis but the data (from 2009-10) is recent enough to disprove Osborne's assertion that the tax is "progressive".

The Institute for Fiscal Studies has suggested that VAT is "progressive" since the poorest spend a higher proportion of their disposable income on VAT-exempt goods such as food, children's clothes and domestic fuel and power. But this analysis fails to take account of changing spending patterns. As the ONS report notes, the poorest fifth now spend 250 per cent more on "new cars, holidays abroad, meals out, audio/visual goods (including TVs) and photographic equipment" than they did in 1986. As a result, VAT has become more, not less, regressive in the last 25 years.

It's possible that VAT will become less regressive as the poorest, facing the biggest squeeze on living standards since the 1920s, reduce spending on non-essentials such as holidays and electronic goods. Indeed, since the height of the consumer boom in 2001-02 (when the poorest fifth were spending 13 per cent of their income in VAT), VAT has become slightly more progressive. But for now, it continues to hit the poorest hardest.

As one Conservative politician commented in April 2009 when asked what taxes he would raise:

You could try, as you say, to put it on VAT, sales tax, but again if you look at the effect of sales tax, it's very regressive, it hits the poorest the hardest. It does, I absolutely promise you. Any sales tax, anything that goes on purchases that you make in shops tends to . . . if you look at it, where VAT goes now it doesn't go on food obviously but it goes very, very widely and VAT is a more regressive tax than income tax or council tax.

His name? David Cameron.

George Eaton is political editor of the New Statesman.

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Is there such a thing as responsible betting?

Punters are encouraged to bet responsibly. What a laugh that is. It’s like encouraging drunks to get drunk responsibly, to crash our cars responsibly, murder each other responsibly.

I try not to watch the commercials between matches, or the studio discussions, or anything really, before or after, except for the match itself. And yet there is one person I never manage to escape properly – Ray Winstone. His cracked face, his mesmerising voice, his endlessly repeated spiel follow me across the room as I escape for the lav, the kitchen, the drinks cupboard.

I’m not sure which betting company he is shouting about, there are just so many of them, offering incredible odds and supposedly free bets. In the past six years, since the laws changed, TV betting adverts have increased by 600 per cent, all offering amazingly simple ways to lose money with just one tap on a smartphone.

The one I hate is the ad for BetVictor. The man who has been fronting it, appearing at windows or on roofs, who I assume is Victor, is just so slimy and horrible.

Betting firms are the ultimate football parasites, second in wealth only to kit manufacturers. They have perfected the capitalist’s art of using OPM (Other People’s Money). They’re not directly involved in football – say, in training or managing – yet they make millions off the back of its popularity. Many of the firms are based offshore in Gibraltar.

Football betting is not new. In the Fifties, my job every week at five o’clock was to sit beside my father’s bed, where he lay paralysed with MS, and write down the football results as they were read out on Sports Report. I had not to breathe, make silly remarks or guess the score. By the inflection in the announcer’s voice you could tell if it was an away win.

Earlier in the week I had filled in his Treble Chance on the Littlewoods pools. The “treble” part was because you had three chances: three points if the game you picked was a score draw, two for a goalless draw and one point for a home or away win. You chose eight games and had to reach 24 points, or as near as possible, then you were in the money.

“Not a damn sausage,” my father would say every week, once I’d marked and handed him back his predictions. He never did win a sausage.

Football pools began in the 1920s, the main ones being Littlewoods and Vernons, both based in Liverpool. They gave employment to thousands of bright young women who checked the results and sang in company choirs in their spare time. Each firm spent millions on advertising. In 1935, Littlewoods flew an aeroplane over London with a banner saying: Littlewoods Above All!

Postwar, they blossomed again, taking in £50m a year. The nation stopped at five on a Saturday to hear the scores, whether they were interested in football or not, hoping to get rich. BBC Sports Report began in 1948 with John Webster reading the results. James Alexander Gordon took over in 1974 – a voice soon familiar throughout the land.

These past few decades, football pools have been left behind, old-fashioned, low-tech, replaced by online betting using smartphones. The betting industry has totally rebooted itself. You can bet while the match is still on, trying to predict who will get the next goal, the next corner, the next throw-in. I made the last one up, but in theory you can bet instantly, on anything, at any time.

The soft sell is interesting. With the old football pools, we knew it was a remote flutter, hoping to make some money. Today the ads imply that betting on football somehow enhances the experience, adds to the enjoyment, involves you in the game itself, hence they show lads all together, drinking and laughing and putting on bets.

At the same time, punters are encouraged to do it responsibly. What a laugh that is. It’s like encouraging drunks to get drunk responsibly, to crash our cars responsibly, murder each other responsibly. Responsibly and respect are now two of the most meaningless words in the football language. People have been gambling, in some form, since the beginning, watching two raindrops drip down inside the cave, lying around in Roman bathhouses playing games. All they’ve done is to change the technology. You have to respect that.

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war