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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The World Cup you’ve never heard of, where the teams have no state

At the Conifa world cup – this year hosted by the Autonomous Republic of Abkhazia – ethnic groups, diaspora communities and disputed territories will battle for footballing glory.

Football's European Championship and the Olympics are set to dominate the back pages over the next few months. How will Team GB fare in Rio? Will the zika virus stop the tournament even going ahead? Will the WAGS prove to be a distraction for the Three Lions? And can Roy Hodgson guide England to a long-awaited trophy?

But before the sprinters are in their blocks or a ball has been kicked, there's a world cup taking place.

Only this world cup is, well, a bit different. There's no Brazil, no damaged metatarsals to speak of, and no Germany to break hearts in a penalty shootout.  There’s been no sign of football’s rotten underbelly rearing its head at this world cup either. No murmurs of the ugly corruption which has plagued Fifa in recent years. Nor any suggestion that handbags have been exchanged for hosting rights.

This biennial, unsung world cup is not being overseen by Fifa however, but rather by Conifa (Confederation of Independent Football Associations), the governing body for those nations discredited by Fifa. Among its member nations are ethnic groups, diaspora communities or disputed territories with varying degrees of autonomy. Due to their contested status, many of the nations are unable to gain recognition from Fifa. As a consequence they cannot compete in tournaments sanctioned by the best-known footballing governing body, and that’s where Conifa provides a raison d’être.

“We give a voice to the unheard”, says Conifa’s General Secretary, Sascha Düerkop, whose world cup kicks off in the Autonomous Republic of Abkhazia at the end of this week.

“We are proud to give our members a forum where they can put themselves on the map.

“From that we hope to give back in the long run and invest in the football infrastructure in our member nations to help them grow.”

The two week footballing celebration starts with an opening ceremony before Kurdistan and Székely Land kick off the tournament. It follows on from 2014’s maiden competition which saw The County of Nice avenging a group stage defeat to Ellan Vannin from the Isle of Man, to take the spoils in the final via a penalty shoot-out.  There were some blowout scores of note however, with South Ossetia smashing Darfur 20-0 and Kurdistan beating the Tamils 9-0 at the event which took place in Östersund, Sweden. Neither of the finalists will be returning to the tournament – throwing down the gauntlet to another twelve teams. 

This, the second Conifa world cup, is testament to the ever-expanding global footprint of the tournament. Abkhazia will welcome sides from four continents – including Western Armenia, the Chagos Islands, United Koreans in Japan and Somaliland.

Despite the “minor” status of the countries taking part, a smattering of professional talent lends credibility to the event. Panjab can call on the experience of ex-Accrington Stanley man Rikki Bains at the heart of their defence, and the coaching savoir-faire of former Tranmere star Reuben Hazell from the dugout. Morten Gamst Pedersen, who turned out for Blackburn Rovers over 300 times and was once a Norwegian international, will lead the Sapmi people. The hosts complete the list of teams to aiming to get their hands on silverware along with Padania, Northern Cyprus, and Raetia.

A quick glance down said list, and it’s hard to ignore the fact that most of the nations competing have strong political associations – be that through war, genocide, displacement or discrimination. The Chagos Islands is one such example. An archipelago in the Indian Ocean, Chagos’ indigenous population was uprooted by the British government in the 1960s to make way for one of the United States' most strategically important military bases – Diego Garcia.

Ever since, they've been campaigning for the right to return. Their side, based in Crawley, has crowdfunded the trip to the tournament. Yet most of its members have never stepped foot on the islands they call home, and which they will now represent. Kurdistan’s efforts to establish an independent state have been well-highlighted, even more so given the last few years of conflict in the Middle East. The hosts too, broke away from Georgia in the 1990s and depend on the financial clout of Russia to prop up their government.

Despite that, Düerkop insists that the event is one which focuses on action on the pitch rather than off it. 

“Many of the nations are politically interested, but we are non-political,” he says. 

“Some of our members are less well-known in the modern world. They have been forgotten, excluded from the global community or simply are ‘unpopular’ for their political positions.

“We are humanitarians and the sides play football to show their existence – nothing more, nothing less.”

The unknown and almost novel status of the tournament flatters to deceive as Conifa’s world cup boasts a broadcast deal, two large stadiums and a plush opening ceremony. Its aim in the long run, however, is to develop into a global competition, and one which is content to sit below Fifa.

“We are happy to be the second biggest football organisation,” admits Düerkop.

“In the future we hope to have women’s and youth tournaments as well as futsal and beach soccer.”

“Our aim is to advertise the beauty and uniqueness of each nation.”

“But the most important purpose is to give those nations that are not members of the global football community a home.”

George Weah, the first African winner of Fifa World Player of the Year award remarked how “football gives a suffering people joy”.

And after speaking to Düerkop there’s certainly a feeling that for those on the game’s periphery, Conifa’s world cup has an allure which offers a shared sense of belonging.

It certainly seems light years away from the glitz and glamour of WAGs and corruption scandals. And that's because it is.

But maybe in a small way, this little-known tournament might restore some of beauty lost by the once “beautiful game”.