The real winners in 2008's pre budget... the banks

Once again, the banking sector is the real winner.

The VAT reduction from 17.5% to 15% was announced as being a benefit to the consumer. But the real winners are the banks. Why?

The banking and insurance sector make supplies of services that fall outside the scope of VAT. What that means, simply put, is that they supply services upon which VAT is not chargeable. But any services of goods the banks may buy from other companies, have VAT added. As a company, you can only recover VAT suffered if you are making taxable supplies.

So for the banks - VAT is a real cost to their business and a tax that they, like the end consumer, have to pay.

A 2.5% reduction is paltry to most people. But for the banks and insurance industry it is huge given the amount that they spend.


Taxpayers are still smarting from bailing out the banks, and I daresay, most would be very unhappy to hear that the banks are in line for this tax reduction.