I hate to admit it but I can cast my mind way back to the early 1970s when as a young lad I would have been full of boisterous expectation for the future. The reality of course is that I could hardly get out of bed without my obligatory fifteen hours of sleep (at least at the weekends). I was the stereotypical adolescent, full of disorientating hormones, acne and still developing my socially beneficial prefrontal cortex. However, the social signposts of the time did imprint some value on to my mind that still persist to this day. One of these notable events was the UK joining what was then termed the European Economic Community (EEC).
In those days we would have still been, as a country, flush with collective aspirations buoyed by the backdrop of three post war decades of positive Real GDP growth. It wasn’t until the early 1970s that the UK ceremoniously threw off its empire fuelled egocentrism with its belated ascension to the European club. We largely closed the doors on our colonial markets and focused with renewed intent at trading with our new European partners.
With this ascension came the need to converge on rules and regulations with one such being to adopt, the European style Value Added Tax system. As an indirect form of taxation its focus was on the seller, as a registered business of goods and services, collecting the crowns coin.
On the 1st April 1973 the initial Standard Rate of VAT was set at 10% and in less than three short months this was reduced to 8%. At its inception differentials were the norm, with rates being stratified into Standard, Reduced and Higher categories, with the latter being focused on luxury goods at 25% VAT. Interestingly, things we now take for granted as not luxury items but rather necessities such as domestic electrical appliances and petrol fell into the Higher VAT rate basket. It wasn’t until 1994 that fuel and power came within scope of the Reduced rate banner, which at that time was 8%. As of writing rate stratification persists in the form of Standard, Reduced and Zero as VAT categories.
It should be noted that the Standard rate VAT has been at an historic level of 20% since 2011 when it took its latest upward trending hike from 17.5%.
As we stand today the Standard rate at 20% covers what the government suggests are most goods and services, the Reduced rate at 5% covers some goods and services such as child car seats and thankfully home energy and the Zero rate exempts most foods plus children’s clothes from VAT entirely.
It’s not hard to see that the notion of what is socially accepted as luxury items has certainly changed as a perception over the years. For example, home electrical appliances and petrol, as they became more socially mainstream, have been accepted as necessities and not luxuries. We also see a shift in placing most goods and services into the Standard VAT bucket which should also be noted has tracked consistently up over the years and is now by far the broadest and most costly VAT basket.
This evolution does however go back further, as prior to the UK joining the EEC we had a Purchase Tax in place that was superseded as an indirect tax and was only focused on the wholesale price of luxury items. At the point of ascension to what was then the EEC that Purchase Tax rate were generally speaking higher than what is now our broadest Standard VAT rate. Also note that this was a wholesale tax and as such didn’t attract a value added keep on paying each time the item sells component. It’s also striking that VAT in comparison to the prior Purchase tax extended its reach into services which only added to its broadness development. So, prior to 1973 the UK had in place, a pay once wholesale purchase indirect tax on only a narrow basket of luxury items which didn’t include business transactional services.
There’s a very strong prima facia case here suggesting that societies poor have, over the course of these VAT rate manoeuvring’s, been exceptionally unfairly targeted. This is evidenced in the above as the meandering story of the UK’s transition from an indirect Purchase tax, only levied on a very narrow band of wholesale luxury items, to a much broader and increasingly higher rate retail based VAT (i.e. keep on paying for the life of the goods or service) system.
It’s not hard to evidence the continuing demise of living standards of, in particular, the poor as the ultra-rich extract, with complicit government intervention, more wealth from our increasingly fragile society. This disproportionate bounty to the ultra-rich and consequential economic yoking of most in society, we can only hope in the fullness of time, will be seen as an unnatural and unfair burden. I can only hope that what society still (if not in overt name) treats as the undeserving poor can benefit in time from the rich learning to share. A touch of irony in conclusion and hope for a more equitable world.
As I have often said to my own children, sharing is caring and I entreat everyone to extend this mantra into the functional realms of wider society.