Why leaving the EU allows us to reduce VAT │ Jake Scott

There have been fewer heated topics in the last year than that of luxury item Value Added Tax (VAT) and the product this targets most obviously – the tampon. Crudely dubbed, the “tampon tax” has incensed the internet’s most ardent keyboard activists who shout that a tax on a bodily function is despicable. I’m inclined to agree; not that all taxation is theft, of course (I am not a libertarian), but that bodily functions subject to tax is somewhat absurd. Did you know, for example, toilet rolls are taxed at the average 20%? I’m not suggesting here that women don’t use toilet paper; quite the opposite. In fact, it is hardly deniable that men don’t have an equal product they so desperately rely on that is taxed as such. Can you think of any? I can’t.

But the reaction I get when I explain to people that the source of VAT is not the British government, but the European Union, I am met with either bemused looks or bewildered silence. When Britain entered the Common Market in 1973, VAT was one of the sledgehammer effects of doing so; it hit small businesses by taking up their valuable time, forcing them to increase their prices and so, as ever, the burden of tax fell on the shoulders of the consumer, not the businessmen. The only positive side of VAT was that it replaced Purchase Tax, which at one stage was 100%, but was 25% when VAT (at 10% in 1973) was introduced. Certainly the British government has the power to shift VAT rates – a cursory glance at the history of VAT rates in 1974 alone makes your stomach churn – and while the average of 20% is a blanket tax on all purchases, for luxury items the absolute minimum allowed by the European Union is 5%.

Of course sanitary items – not a luxury by any standard – should have a lower tax. But why should we have a tax at all? Any form of tax on purchasable items will only ever impact consumers, especially a regressive tax like VAT. And it’s fine (arguably…) to defend taxes like the Sugar Tax that affect a changeable behaviour, but when you cannot control the reason for buying something, why should you be punished? Why should menstruation be a vice of poverty? Leaving behind the particular issue of the “tampon tax”, the only reason the British government will retain VAT is the massive income it generates (£111bn in 2015), even if it damages the people - but this loss (either through reduction or abolition) can be offset by less regressive taxation at the point of production, rather than the point of sale.

But given the government’s intention to create the Great Repeal Bill, an act which would formally adopt all existing EU laws as part of the British legal system to then slowly be dissected, leaving the European Union offers us a chance to do something truly amazing – abolish VAT, or at least radically reduce it. Such a move would offer lower prices for consumers, while encouraging more business into the country and growing the economy further - CapX published a similar article on Friday arguing for a reduction in VAT across the board. Think how much this would benefit the average working family – gas and electricity are subject to the 5% levy, and I’m sure most people are angry at British Gas for their apparent price increase. Even children’s car seats are taxed; surely the safety of children is not a luxury.

Reducing VAT or abolishing it entirely would also help small business in beginning and growing. For big (often a synonym these days for "international") businesses, VAT is an annoyance, a matter of paperwork that can be swallowed by massive accounting teams and legal consultants. But for small businesses, for whom every hour counts, VAT is another example of the "dead hand of the State" holding them back from growing and - ultimately - enriching the local economies. Government initiatives like enterprise zones help, but why should localised, as opposed to local, economies benefit? Why can the rural village not foster grocers and butchers? Why can the towns not have local bookstores? Why can the big city not have small retailers? A nationwide reduction in VAT would provide a sustainable model of growth that would enrich everyone, by encouraging more people to take on the role of businessman and woman, and become their own boss. 

Some may respond and say that dropping VAT may enrich the rich further – but this is not the case. Regressive taxes like VAT only ever affect the consumer, because they are levied at the point of sale, not at the cost of production or shipping. The profits of big bosses would not increase, but the savings of families would, and for me that alone is enough of a reason to abolish VAT.

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