It’s been revealed that people suffering from skin cancer are waiting up to a year to start treatment. The fact that so many people with serious illnesses are waiting for so long is a scandal that should anger us all. The Liberal Democrats are rightly outraged by this and have called for action from the Government. Unfortunately, their policy proposal will do absolutely nothing to help.
The Lib Dems are calling to make high factor sunscreen to be exempt from VAT. The logic of this makes a lot of sense. People have limited budgets and so they might not have enough money to pay for something which they do not see as essential. They won’t buy sunscreen as it is too expensive and so they will increase their risk of getting skin cancer. Therefore, if you removed VAT from sunscreen it would be much more affordable and so people would be much more likely to buy it and, therefore, reduce their risk.
Unfortunately, this ignores the fact that any cut to VAT is highly unlikely to be passed onto consumers in the form of lower prices. For example, when VAT was removed from tampons it did not lead to lower prices in consumers. Similarly, after VAT was scrapped for e-books, the same thing happened – it had no impact on the prices paid by shoppers. The only people it benefitted were suppliers and retailers. While there is obviously nothing wrong with this, it did not have the impact that campaigners had hoped for and there is no reason to believe that the case would be any different when it comes to sunscreen.
However, even if it did lead to lower prices, it still would not be a good policy. Attempting to essentially provide welfare through the VAT system by levying different rates and exemptions is inefficient and just leads to further complication in the tax system.
Despite the different rates and exemptions, VAT is a relatively efficient way of raising revenue for HM Treasury and is far less distortionary than many other taxes. Rather than introducing even more exemptions, the Government should scrap all the different rates and exemptions and levy VAT on everything. This includes all food, clothes for children, dog food, tampons, private school fees, and high factor sunscreen. The VAT registration threshold should be lowered so many more firms would be liable to pay it.
This would, of course, lead to an increase in prices for consumers and so would be incredibly unpopular. However, it would also bring many benefits. As discussed above, VAT is an efficient revenue raiser and is far less damaging than many other taxes. It would allow the Government to cut far more economically destructive taxes such as Stamp Duty. The resultant increase in the cost of living could be offset as extra revenue to be used to provide much more generous and targeted support for the very poorest households via direct cash payments.
It would also be a much fairer system. It would allow the Government to cut the headline rate of VAT and so the rate paid by everyone would be lower. This is surely preferable to the Government giving preferential treatment to certain groups or industries just because they have a powerful lobby group, celebrities, or newspapers behind them.
It would also actually be good for businesses. It would make things much more simple for them and would, counter-intuitively, benefit small businesses. Many firms remain small because the VAT registration threshold acts as a massive disincentive for growth. Lowering the threshold would get the ‘pain’ out of the way much earlier and thus would reduce the impact on firms’ ability to grow.
This country has accepted stagnant economic growth for far too long and so politicians feel compelled to try and make products more affordable through ill-thought-out policies such as fiddling with the tax system. Instead, politicians of all parties should focus on increasing the real wages and living standards of everyone in the country by boosting productivity. This is a surefire to bring prosperity to the UK and allow people to buy the things they want and need. Some of this will involve the Government taking an active role such as investing in transport infrastructure and making energy more affordable by providing the funding for things such as nuclear power plants. Crucially, it will mean the Government getting out of the way by liberalising the planning system and allowing millions of new homes to be built in and around our major towns and cities.
As with many policy proposals, the idea of cutting VAT on sunscreen is well-intentioned. Skin cancer is a terrible disease and it’s encouraging that politicians want to do something about it. Unfortunately, the Lib Dems’ proposal will not meet its desired aim and will simply make our tax system even more complicated. The Government should instead be bold on VAT reform and improve living standards by introducing supply side reforms to increase productivity and bolster growth.
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