Tuesday, 9 December 2008

The generosity of T-Mobile and other retailers

I received an email from T-mobile today telling me that they were kindly passing the 2.5% cut in the VAT rate on to their customers and I would see the reduction in my next bill. They are not the first to make this statement.

Excuse me, but is somebody a bit confused here?

T-mobile is not my bank. Nor are any of the retailers now offering to pass the VAT cut onto customers.

The 2.5% cut in the rate of VAT is not a shift in the rate at which they buy energy from the government, which they may then choose to pass on or not depending on their own whim and the details of my contract.

VAT is a tax on consumption of luxuries (at least in theory). In fact, at the bottom of every receipt it says how much of the bill is tax. Therefore, a cut in VAT should automatically be passed onto consumers.

In fact, it is not the phone company or the retailer that is charging me the 17.5% (or now 15%) VAT in the first place. It is government. So for the retailers to “not pass it on” they would have to raise their prices by just under 2.5%.

So let us thank T-mobile and other retailers for not taking the opportunity of a reduction in VAT to raise their prices in a manner that would either have left them individually less competitive or collectively guilty of operating a cartel.

3 comments:

Ryan said...

The government made it clear at the time that businesses did not need to reduce the shelf prices by 2.13%, but instead could raise the pre-vat price so that they kept the difference.

Joe Otten said...

But we all know that prices can be sticky, even without active collusion - I'm sure the game theory wonks can explain why.

Anyway 3 generously passed on the VAT cut by crediting my account with £10.21 when I bought a £10 top up for my mobile broadband. Pity they have nothing I can spend that 21p on. I suppose if I buy another 49 top ups I will get one free.

Tom Papworth said...

Ryan,

I eat my words, but only partially.

If the government said they could keep the difference then perhaps it is unfair to berate them for telling me that they were obeying market forces instead of joining in the government-mandated cartel.

But still those that pass the rate on will be more competitive and so will get more custom.