Contribution
Thank you for allowing me to speak, Mr Vickers, after I turned up late.
Few people can speak about VAT with such excitement as I can. I was UK entrepreneur of the year, I have lectured on entrepreneurship for 20 years, and I have mentored many early-stage businesses. I have concluded that the one thing we can do that could transform the small business community is to increase the VAT registration threshold to allow microbusinesses to scale up.
Has anyone tried to get hold of a tradesman recently—a plumber, a decorator or an electrician? I will use the collective word plumber, to make it easier for people of my mentality to understand. There is an army of plumbers —mostly men who work alone—who seem incredibly hard to get hold of. They tend to be older, they learned on the tools or at a technical college, and they are happy to limit their income to squeeze below the £90,000 VAT restriction. There are many who, looking for a bit of holiday money, might do a job on the side for cash.
There is a real shortage of plumbers, joiners and electricians, in part due to the closing down of technical colleges, and the young pursuing non-vocational degrees while loading themselves with student debt. Historically and internationally, skilled tradespeople have been held in great esteem, although not so much in today’s Britain. We all know good tradespeople with a great client list and reputation, all of whom make excellent money and are their own boss. An early learn for all those people is that the VAT registration threshold is essential: they need to pay 20% beyond that £90,000. My key point is that these sole traders will not take on an apprentice or an assistant, because that would take them over the VAT starting point.
Not being VAT-registered is a fantastic advantage for a person. He or she has a 20% advantage over competitors who have several staff. In addition, the sort of person who likes being on the tools is not the sort of person who would relish the additional paperwork of being VAT-registered. It is not only doing the VAT paperwork that puts sole traders off growing their business; it is the real burden of hiring people, the payroll, the contracts of employment and the HR responsibilities. We need to make it worth their while, so an increase of a few tens of thousands will not do the job. There are 4.4 million self-employed people in the UK; just think what a catapult forward for our economy we would see if only 10% of them were to hire a couple of people.
I propose that the VAT starting level be increased from £90,000 to £250,000 for all businesses. If that happened, I predict that a massive number of microbusinesses would hire an apprentice or two, creating a pool of young plumbers getting trained. As the availability of plumbers increased, householders would get work done quicker, there would be more competition and therefore lower charges, and clients would be happier. Small businesses, having built up a bit of a scale with three employees, might then grow into a proper business with 100 or more employees, like Pimlico Plumbers.
It is believed that my proposal would cost the Treasury perhaps £2 billion in lost VAT, but I am sure that HMRC would win out overall. It would get income tax and national insurance from the newly-hired and well-paid staff, and the bigger companies would start paying corporation tax. It would also reduce the tax-avoidance cash economy. In my opinion, the 20% difference in the change from £90,000 to £250,000 would be easily made up.
Arguments are made that we should drop the threshold to zero and make all sales subject to VAT, but that would be a massive disincentive to people starting a business. The results of my proposed VAT change would be more people in well-paid employment, a gateway for the young into an excellent career, a solution to skilled trade shortages, a stimulant to the economy, and higher tax collected by the Exchequer—a win-win. Why would we want to incentivise millions of people not to hire youngsters, not to grow their businesses and not to pay more tax?