On 8 July 2020 the government announced that VAT was to be reduced for businesses in the hospitality and hotel industry. This was an acknowledgement that whilst VAT can raise huge sums for the exchequer it can damage industries that we care about. It can turn an otherwise profitable business into a loss making one, whilst doing nothing to prevent businesses or consumers making choices that are detrimental to society or the world.
There is now a great opportunity to re-think VAT. As a starting point, perhaps we have it fundamentally wrong. We should not be taxing businesses that add value, but those that do not. We need what economists would call a ‚’negative externalities‚’ tax, but perhaps is easier understood as a no-value added tax.
We could have different rates of tax on products delivered by diesel-van to those delivered by bicycle. Recycled packaging would cost less than single-use plastics. Locally produced grass-fed beef would have a lower tariff than the intensively reared kind, almonds grown where water is scarce would cost more than peanuts grown sustainably. Fewer restaurants would close down, but perhaps more bookmakers would.
NVAT could be clearly labelled. It would nudge consumers into making healthier, more environmentally friendly choices. It could amalgamate a dozen existing taxes, from sugar taxes to air passenger duty into one simple to understand number.
VAT was introduced before computerised inventories and environmental impact studies. Importers already use over 5000 commodity codes to classify their products. Brexit has enabled Britain to choose its own system of direct taxation. VAT is a 20th century tax. We have an opportunity for something new.
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