NOW 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.
BRING BACK SCRAP
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
The government has very few major options for raising revenue if the deficit is to be reduced, the only significant means available are
1: reduction in public spending
2: increase in income tax
3: increase in sales tax
An increase in sales tax (VAT) seems the most likely option since it has less of a direct impact on the consumer than increases in income tax. 19% is now normal in many European countries (including Germany where I live). There is also the reduced rate of 7%, and there are plenty of zero rated goods. I think in all honesty this is the course thegovernment is most likely to take. At least raises in VAT are accross the board (and do not convey a competitive advantage to any other domestic retailers), but it obviously can impact on the profit margin of retailers since it pressures them to reduce prices.
I am surprised that there is no mention of the damage the impending VAT increase will have on the independent used car dealer. The VAT on our margin is already hard to bear as it has no bearing on the “real” net profit of each vehicle.It still amazes me that the government can take VAT on each used car sold even though the VAT was paid when the vehicle was sold new and I wonder how the UK compares to the rest of the EU in terms of VAT on used vehicles ?
In germany VAT must usually be charged also with used vehicles. Its a common way to get Hans Normal into the VAT trap, since when he sells his car to a used car dealer the dealer often files it as a sale including VAT, leaving the seller with an unexpected bill from the tax authorities (which would normally be illegal if the seller is in any case below the VAT threshold and he is unaware of the VAT he supposedly received)
yes vat is included with used car and new cars in Germany and good for the Germany citizens and also it will for making you free .
thanks
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