Friday, 27 July 2007

Government’s good intentions encourage greed and criminality

This interesting article in today’s Times caught my eye. On the face of it, it is a simple case of fraud that should stir the ire of any right-thinking person. But it nonetheless highlights the inherent problems that result from government meddling.

I was not aware of the fact, but apparently the government has exempted disabled drivers from paying VAT on new cars. This immediately strikes me as odd, in that there is no inherent reason why a disabled person – even one with mobility difficulties – would have greater need for a car than any particular other person. For one thing, it smacks of lumping all disabled people together and assuming that their needs are identical, whereas in fact the need for motorised transport probably varies as widely among disabled people as it does among the general population. Secondly, there are plenty of non-disabled people who desperately need a car – perhaps to convey their children to school, to go to work or attend hospital. They do not get tax breaks to buy one, however. One might also question why the benefit is not being channelled into public transport, as the government claims to want to encourage us out of cars.

More to the point, it is an excellent example of where it would be better to give people money rather than perks. In this case, rather than give disabled people a tax break on buying a car, why not give them money to contribute to the car, or if they prefer a rail ticket, a mobility scooter, their heating bill, entertainment or whatever they consider to be their priority.

The paternalism is only half of the problem, however. The other half is that, unsurprisingly, enterprising people have learnt to game the system. Firstly, the VAT exemption does not appear to be capped. Thus it applies not only to a Nissan Micra, on which the VAT might be just over £1,000. It appears it also applies to “top-of-the-range Land Rovers, Bentleys, Maseratis and Lamborghinis, costing up to £70,000. That means that [disabled drivers] could save as much as £12,250 on each transaction in VAT.”

Now, I think it is pretty clear that the government never intended to give a tax break to those buying luxury cars that cost almost two and a half times the average household income. But there is more to come.

Some of these disabled drivers are so enterprising that they have taken to selling their un-driven cars on at a cost that is higher than the VAT-exempt price that they paid, but not as high as the VAT-included price that a typical dealer would charge. On a luxury car, that difference could be as much as £10,000. Even if the buyer and the disabled re-seller split that difference equally, that means that the disabled driver is able to turn his government perk into a £5,000 cash profit.

Unethical it may be (and very possibly illegal too), but it is also a fine example of how government intervention creates moral hazard and ultimately generates immorality and criminality where previously there was none. As ever with government, the intentions are all fine and dandy, but the outcomes are very different from what was intended.

11 comments:

Alex Wilcock said...

Uncanny – with a bleary glance at your headline, I combined the ‘in-’ on one line with the ‘-lity’ on the next and read ‘Government’s good intentions encourage greed and infidelity’. But, of course, I was mistaken: that’s the Tories’ plan to bribe people into marriage, isn’t it?

Aaron Trevena said...

I think you've missed the point - the purpose of the tax-break is to make it easier for people who need to get modified cars.

Of course they managed to make a pigs ear of it, not only failing to cap, but also not making it part of the motability scheme, or linking it to required modifications.

It *is* hard to get a used car of the right specifications if you are disabled, and after-market modifications are very expensive. But the motability scheme should just be made more flexible, with a capped VAT exemption subject to the same kind of conditions you have for motability.

We've just got a HP used car for my wife, and it was a huge pain to get a car with a specification close to your needs without buying new. All credit to Vospers in Truro for getting about half a dozen cars down to their showroom to check their feasibility, as well as doing a lot of homework on automatic cars with isofix, and large boots.

Joe Otten said...

This shows that VAT is a poor vehicle for social engineering. I have similar reservations about the proposal to VAT-exempt energy efficiency products and materials. A "material" like a car is just too flexible an item to ever earn a blanket subsidy in the expectation that it will be used for some social good.

I'm quite happy to see lower taxes or subsidies to provide a) extra mobility for disabled people, and b) better energy efficiency. But whoever thought of using VAT exemption to do this? VAT mostly works because is is consistent, and fraud generally works around exceptions.

We don't suggest that some occupations be deemed as serving social goods and therefore should be subject to less income tax. It sounds great, but would be a nightmare in practise. VAT and Income tax are not forms of punishment and should not be judgemental.

Anonymous said...

You need to get out in the big wide world.
If you can not see why a disabled person needs a car more than a able bodied person you should try sitting in a wheelchair for a week without the use of a car.
Anyone who is so desperately needing a car to get the kids to school who is to fat and lazy to walk them there,could always throw themselves under a bus feet first, then they could buy a car vat free...
1.rail ticket-Ha HA HA HA
2.mobility scooter-Why not bring back them blue 3 wheelers for them to get around in.
3.Heating bill-Whats that got to do with getting around
4.entertainment-Thats a good one How about a night at a lap dancing club

you dont know one disabled person by the sounds of it

Tom Papworth said...

Not at all. In fact, I have far more respect for disabled people than you do for parents, it seems. Has it occured to you that they might live more than walking distance from the school? Perhaps you need to get out of the city more.

My solution would be to give disabled people the money so as to empower them to take their own decisions. You would rather they were handed specific gifts by a government that claims to know better than them what is in their own interests.

None of the disabled people I know want to be treated with such contempt.

Anonymous said...

What aload of rubbish.
Respect??
I was just saying that if someone wanted a vat free car it was quite easy to qualify for one..
A school that is to far to walk to???
WELL LUCKY THEM!!!!!
A vat free car is for a disabled person that cant WALK.
This also costs the tax payer nothing,because the vat is simply not paid.
You want to give people money for heating and nights out???
2 vat free cars a year sounds better one to get around in and one to sell for a bit of profit

Tom Papworth said...

I do not see what is so lucky about living several miles from a school. Clearly rural poverty is something that you have never considered.

The difference between allowing disabled people that can't walk to buy a car VAT free, and giving disabled people the equivalent amount of money so that they can choose to spend it as they wish, is empowerment.

Of course to say that a tax forgone costs the taxpayer nothing is ridiculous: any forgone tax must either mean a foregone service or a replacement tax elsewhere.

As for the thought that giving people money for heating is ridiculous, you should perhaps try telling that to the dozens of elderly people who die each year from the cold.

Anonymous said...

The VAT is zero rated.
Just like on lots of other items like Wheelchairs and also baby milk
It is not paid,not claimed back
thus costing the tax payer nothing.
You also seem to be unaware that all(1000s)of motability cars are vat free. Charities dont pay vat on cars/vans/minibus.
1.So you take the Zero rating away,how many disabled people are left unable to get to work.
2.Mum cant get the kids to school
(Mum cant walk at all)(unlike your rural Mum)so dad has to give up work to get kids to school.
3.Old ladies cant have their one day week out to the day center.
And so on......

Taking into account Zero rating costs the tax payer nothing...
and that some disabled people are unable to get to work ect.. because THEY CANT WALK and are now on benefits
How would your hand out work?

As far as I am aware the Armed Forces also get Vat free cars.
You want to take this from them aswell?

Tom Papworth said...

I'm going to have one more crack at explaining this, and then I think I might give up.

It does not matter whether the Excehquer takes the VAT and then gives it back or doesn't take it in the first place (i.e. zero rates it); the net effect is the same. By giving a tax break to an individual (in this case, a disabled person) the Exchequer sacrifices revenue which must therefore either result in reduced public expenditure or higher taxes elsewhere.

In effect, the Exchequer is giving the person a sum of money that can be spent on one thing only: in this case, the Exchequer is bearing the cost of the VAT on a car.

The alternative would be for the Exchequer to charge VAT for everybody but to give disabled people the money instead, enabling them to buy the car if they wish or, if the disabled person judges that they would be better off buying something else, they could spend the money some other way.

So in answer to your questions:
1) None - if they need a car they can pay the VAT with the money they were given
2) Disabled mum can buy a car as in 1, above, or could use the money for bus fares while she works, or whatever; she is free to choose
3) The old ladies might prefer to spend the money on something other than trips to the day centre, such as visiting relatives in other cities;
...and so on.

The existing system treats people as children for whom decisions must be taken; my alternative treats them as adults able to take spending decisions for themselves.

Anonymous said...

So you would take everyones
motability cars from them..
Give some disabled mum who uses a electric wheelchair,bus fares(she cant get on most public transport)(and why do you want to give her bus fares when disabled people get free bus passes?)
and as for the little old lady(all she wants is to be picked up by the local charity minibus and taken to day center for coffee with her mates once a week)

YES your right GIVE UP

Tom Papworth said...

Clearly giving individuals freedom and dignity is anathema to you.

I shall.