How VAT damages trade skills

It's barely understood how VAT has been a factor in the destruction of the skills base of this nation:

To the retailer, the introduction of VAT was a godsend, sweeping away a mess of purchase taxes, replacing them with a simple one-stop tax that the customer barely notices - if at all. (How many people ask the shop assistant at M&S "....can you do something about the VAT"?)

To the wholesaler or industrialist, VAT is of no consequence, as it simply passes through unnoticed, improving the cash flow in the process, but impinging not at all on the price of the product. All prices are quoted 'Excl VAT'.

The VAT registered tradesman, however- the guy at the end of the line charged with prising this no small additional sum of money out of the customer - finds himself in competition with the unregistered tradesman who's decided to work on his own and remain below the VAT threshold. The effect on the marginal tax rates is simply staggering, and a simple calculation explains why we have seen a collapse in trade skills over the last thirty years. No one in trade dealing direct to the public would willingly take on and train staff when their main role becomes that of a tax collector. In order to compete, the middling business has to either swallow the VAT or risk prosecution for tax evasion. Yet there isn't a policeman, tax inspector or politician in the land who doesn't say "Can we do something about the VAT? The chap down the road doesn't charge it."

Locked into a lease on premises and hire purchase agreements on expensive machinery, the only way to compete is to avoid the direct sales business altogether. This explains, of course, not just the demise of the small joinery company, but all trades from PVC windows to car repairs. VAT favours big business, and puts an enormous obstacle in the way of small businesses to grow organically. When, in those dark days of 1985, I told my bank manager that VAT was going to be put on home improvements, he said "Oh good! It'll improve your cash flow". That might have been true had I been selling to the trade - when VAT is indeed of no consequence, and DOES improve cash flow - but selling direct to householders I knew that it would be ME that paid the VAT, as no one would stand a 15% hike in prices overnight. Worse, the government decreed it uneconomic to police individual tradesmen, and allowed a gap for the competition to seriously undercut the slightly bigger business employing a few staff, lumbered with plant and machinery, and locked into an overhead. As materials make up only a modest part of the cost, for the tradesman, VAT amounts to a tax on his labour. Hardly surprising then, that to this day, the individual tradesman wants to work on his own, as he can make around eight times the income for perhaps half the effort.* As a result, for ten years I simply handed my quarterly profits over to the VATman and watched the growth of a generation of shiftless young men denied the opportunity of learning a trade while subject to the discipline and example set by their master.

This is why we have a desperate shortage of skilled labour, a great unemployed pool of our own children and rely on cheap Eastern european neighbours to fill the gap.

When will we learn?

*If you don't believe me, e-mail me and I'll send you the figures.