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Why are chocolate-covered shortbread and plain shortbread taxed differently? The UK’s VAT system is full of bizarre inconsistencies that make it complex, inefficient, and unfair.
In this episode, we dive into how VAT works, why economists tend to love it in theory, and why the UK’s version falls short in practice. We explore zero and reduced rates, exemptions, and myths about regressivity, and discuss how simplifying VAT could make it fairer and less distortionary.
In the fourth and final episode of our tax mini-series, Helen, Ben and Stuart look at how to fix one of the UK’s most important and misunderstood taxes.
Zooming in: discussion questions
These are a set of questions designed for A Level economics students to discuss, written by teacher Will Haines.
1. What is VAT and how it is calculated? Use an example to illustrate your answer.
2. Explain why VAT might be considered regressive in terms of income, but progressive in terms of spending.
3. Assess the potential economic impact if the government were to abolish VAT zero rates, reduced rates and exemptions.
Host
Helen Miller
Helen joined the IFS in 2007. She has almost two decades of experience analysing UK fiscal policy and providing trusted advice to policymakers.
Participants
Stuart Adam
Stuart is a Senior Economist working in the Tax sector, and focuses on analysing the design of the tax and benefit system.
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