Business News

Small businesses floundering in VAT and petrol prices

Filed under: Business Finance — Alan @ 2:33 am

Once again, small businesses in the U.K. are taking the worst hit from the combination of rising fuel costs and the ubiquitous VAT, according to FSB national chairman, John Walker.  He said that the Federation of Small Businesses has been calling for the Conservative Party’s promised “stabilizer” on fuel prices, but no action has been taken.

The idea is that a system of adjustment would be put in place whereby the duty on fuel would be lowered when oil prices rise and increased when they drop.

The FSB also noted that on most of the continent, the price of fuel to consumers is split about half and half between the product itself and the tax on it, whereas in the U.K. the split is more like three to one, with the larger portion going to tax.  They said the U.K. also has Europe’s second-highest rate on diesel fuel, which makes it that much harder on businesses that depend on long and short-haul road transport.

Prime Minister David Cameron told reporters on Sunday that setting up an adjustment on fuel prices will be a difficult proposition.  He said the increase in duty was part of Labour’s programme, and with the deficit being what it is, the Coalition government couldn’t see a way to get rid of it.  The idea, Cameron suggested, is for the Treasury to “share the burden” of higher petrol costs with motorists, but the bottom line is:  the Treasury needs more revenue, from any source that can be tapped.

The issue is likely to heat up with protesters organizing rallies in a “fair fuel” campaign to let the government know that they’re seriously disappointed in the lack of action to support businesses struggling for survival.

Higher VAT day arrives

Filed under: Business Finance — Alan @ 4:08 am

January 5 is going to be one of those days that ‘goes down in infamy’ for many in the U.K, as it marks the increase in VAT from 17.5% to 20%, where it is probably going to stay until it goes up again.  Despite the hopes of the Federation of Small Businesses (FSB) that the rate may drop back at some point in the deficit reduction, Chancellor George Osborne has stated that the rise will stay in effect indefinitely, certainly to 2015.

The increase in VAT is a major part of the government’s attempt to reduce the national debt; the change was announced back in June but from the sounds of it, most businesses and individuals haven’t really gotten behind it.  The tax will affect almost every purchase, with the exception of necessities such as food, children’s clothing and newspapers.  It is expected to bring an additional £13 billion into the government’s coffers in the next financial year beginning April 1.

The FSB argues that the increase will hit retailers the hardest, as they are less able to absorb the cost and will have to pass it along to customers in one way or another, chiefly in higher prices.  They said that over half of their members expect to raise prices, and a large percentage is expecting a drop in sales and loss of customers.

The government’s argument has always been that the increase in VAT is preferable to raising income taxes or national insurance rates.  However, another argument suggests that an adjusted VAT rate similar to that of income tax would be a possible alternative to the overall 20% rate.