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PRINTPoorly timed VAT rise will force thousands into poverty
Immediate Release: 30 December 2009Poverty charity Elizabeth Finn Care is warning of widespread job losses and businesses going bust when VAT returns to 17.5% on January 1 – right in the middle of the busiest sales period of the year.
Many unemployed professionals helped by Elizabeth Finn Care are already living on the breadline and say it will be impossible to tighten their belts, as every day items will be priced out of their reach as the temporary 15% rate comes to an end.
Around 66% of the people that come to Elizabeth Finn Care – many of whom are disabled or elderly – can’t replace electrical goods, such as cookers, when they break. Some 72% have to go without new clothes while a staggering 55% cannot afford the transport costs involved in visiting family, leaving them feeling lonely and isolated.
Rob Tolan, head of policy and research at Elizabeth Fin Care, said the temporary VAT cut – which has saved an average of £475 for every household in the last year – has been of particular benefit to the poorest families. He said: “Whilst VAT is often said to be a tax on 'luxuries', with goods such as children's clothing and food exempt, this is a fallacy.
“Are we arguing that the ability to cook a meal, clothe oneself and interact with loved ones are luxuries in a modern, affluent society? VAT is a disproportionate tax. The less you earn, the more you will feel the pinch if the rate is hiked back up.”
Former theatre manager Alex Scott, 53, was forced to stop work when he was registered blind, and now survives on a tight budget of state benefits and help from Elizabeth Finn Care. “I have been saving up for the January sales all year as it is the only time when I can afford to buy many necessary items. I need new clothes, and a new computer,” he said.
“When you live on such a tight margin you learn to manage quite efficiently. But whacking 2.5% onto the price of goods will make a huge difference to my quality of life.”
The rise also comes at the worst possible time for businesses, and threatens to stoke inflation and derail economic recovery just as consumer confidence resurfaces.
Sales on Britain's high streets rose at the fastest pace in two years in November as consumers rushed to take advantage of the lower tax rate before the January 1 deadline. But this will inevitably result in a spending slump in its aftermath.
Elizabeth Finn Care (EFC) is warning of a huge social fall-out as tumbling sales force a wave of redundancies, causing an increase in people defaulting on debt repayments and rising house repossessions.
Motoring costs will also rise with increased VAT and fuel duty putting an extra 4p onto every litre of fuel by April. To make matters worse, credit conditions facing consumers are still excessively tight.
Britain's unemployment total hit 2.49million last week – the highest in 15 years. This poorly timed VAT rise will only exacerbate the situation, forcing even more into a saturated jobs market.
But the increase to 17.5% is just a taster of worse to come. Consumers are very likely to face higher taxes as part of the major corrective action that will be needed to plug a Government deficit expected to top £175bn this year.
A National Insurance hike is already in the pipeline and although it doesn’t come into force until April 2011, it will cost someone earning £25,000 an extra £200 a year in deductions.
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Notes to Editors:
- Elizabeth Finn Care helps professionals from over 120 occupations who are in financial difficulty.
- Elizabeth Finn Care provides one-off and ongoing financial help, tailored to individual circumstances, as well as emotional support through our experienced caseworkers and national volunteer network.
- People who seek help from Elizabeth Finn Care are coping with unexpected changes in their life and the resulting financial hardship, typically due to ill health, disability or marital breakdown.
- Since mid 2008, we are increasingly helping people who are struggling financially after redundancy.
- 75% of people who seek help from Elizabeth Finn Care have some level of mental health problems.
- Since Elizabeth Finn Care was founded, we have given £130,000,000 to those in need.