18.05.10: Why a rise in VAT could spell disaster

Time 2:17 pm, May 18, 2010

osborneNOW the hullabaloo has died down around the election and most of us have got used to the fact David Cameron is Prime Minister, I’ve been thinking: What’s the worst that could happen?

Well, if reports in the national press are to believed – things are about to get very tough. Very tough indeed.

My biggest concern for the automotive industry is the very real likelihood that VAT is going up.

And if you thought price rises from car manufacturers were bad enough, wait until you have to add on another 2.5 per cent to your window stickers. Or worse still, five per cent…

The BBC reported last week that out of a panel of 28 independent economists, which is used by the Treasury to assist forecasts, 24 said they expected the rate to rise in the coming Parliament. Most said it would be up to 20 per cent before the end of 2011.

That rise could generate £11.5bn a year in revenue for the new Con-Lib coalition government – but at what cost to businesses like yours?

With the new car market teetering on the precipice of recovery and large dealers like Pendragon, Vertu and Inchcape reporting decent starts to 2010, the last thing dealers need now is for prices to rise.

Dealers have already had to cope with the end of scrappage in March and the much-maligned Showroom Tax arriving in April – a hike in VAT by the new Chancellor George Osbourne (pictured above) would simply be a kick in the teeth.


We all know that serious cuts need to be made to balance the books, but by doing it immediately, just as UK PLC is starting to get back on its feet is, in my view, a catastrophic mistake.

Consumers won’t stomach yet more price rises on cars – especially when their budgets will be squeezed everywhere else that VAT is applied, leaving even less disposable income for big ticket purchases.

So what should they do instead? Well, if they had any sense, they’d restart the Scrappage Scheme – and put it in place indefinitely.

It was, after all, a self-funding scheme – and according to experts actually generated money for the government over and above its contribution from the VAT returns.

It took dirty old cars of the streets, stimulated demand, secured thousands of jobs, arguably made Britian’s roads safer – and made the government money. If we can see that, why on earth can’t the new government?

Yes, I know it’d be a very small drop in the black hole deficit, but instead of a reactive VAT rise it would be a positive step – and whereas the latter would seriously damage our industry, the former would certainly assist it.

I might even write to my local MP…


James Baggott's avatar

James is the founder and editor-in-chief of Car Dealer Magazine, and CEO of parent company Baize Group. James has been a motoring journalist for more than 20 years writing about cars and the car industry.

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