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					January 2011


The Impact of VAT increase on People with
Long Term Conditions in Scotland

Key Points

   With the increase in Value Added Tax (VAT) to 20 per cent, the
    poorest tenth of the UK will be hit more than twice as hard as the
    richest tenth.1
   The strong correlation between having a long term condition and
    being in poverty means that people living with long term conditions
    will represent a large proportion of those worst affected by VAT
    rise.
   The increased cost of living will disproportionately affect people
    living with long term conditions, many of whom will already have
    higher than average outgoings.
   Furthermore, people with long term conditions will face increased
    financial barriers to managing their conditions, for example,
    increased cost of healthy eating, private exercise classes, social
    activities, alternative therapies etc.


Poverty and long term conditions at a glance


       In Scotland, someone in a deprived area is more than twice as
        likely as someone in an affluent area to have a long term
        condition.2


1
  James Browne, “Personal taxes and distributional impact of budget measures”, Institute of Fiscal Studies
(http://www.ifs.org.uk/budgets/budgetjune2010/browne.pdf)
2
  Scottish Government, Building a Health Service Fit for the Future: A National Framework for Service
Change in the NHS in Scotland (2005)



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        On average people with long term conditions are more likely to
         have a lower household income.3
        Over 60 per cent of households containing at least one person
         who is disabled has an annual income of £15,000.4
        56 per cent of disabled adults stated they were restricted in „the
         type of work they did or the salary they were paid‟ compared to
         just 26 per cent of the general population.5
        People living with long term conditions face significant barriers to
         work. Compared to the rest of the UK, Scotland the proportion
         of disabled people who are unable to access employment is
         considerably higher than most other regions in the UK.6

People with long term conditions not only experience higher levels of
unemployment, they are also more likely to occupy lower-status, less
secure jobs.

Citizen‟s Advice Scotland (CAS) found that 41 per cent of their CAB
debt clients listed sickness or disability as a reason for their debt.
Furthermore, „sick or disabled‟ CAB debt clients have greater financial
problems and on average:

        have six debts and owe an average of £20,588,
        and, owe £29 for every £1 of net monthly income.7

Just as living with disability or a long term condition can cause
financial hardship, poverty also seriously undermines health. According
to CAS nine out of ten CAB debt clients state that debt has had a
negative impact on mental and physical health. 8

Poverty, VAT and long term conditions

Not only do people with long term conditions face a greater risk of
poverty, debt and unemployment; they are likely to be among those
hardest hit by an increased cost of living.

3
  Wendy Loretto and Matt Taylor, Characteristics of Adults in Scotland with Long-term Health Conditions
(University of Edinburgh and Scottish Executive Social Research, 2009)
4
  Wendy Loretto and Matt Taylor, Characteristics of Adults in Scotland with Long-term Health Conditions
(University of Edinburgh and Scottish Executive Social Research, 2009)
5
  Office for Disability Issues, Live Opportunities Survey (2010) (http://www.odi.gov.uk/disability-statistics-
and-research/life-opportunities-survey.php)
6
  “The proportion of people who are both work-limiting disabled and lack, but want, paid work is
somewhat higher in Scotland than in most of the rest of the UK”, The Poverty Site
(http://www.poverty.org.uk/s45/b.pdf)
7
  Citizens Advice Scotland, Disabled and Sick CAB debt clients: Drowning in Debt (Briefing
Sheet 5) (2009)
8
  Citizens Advice Scotland, Disabled and Sick CAB debt clients: Drowning in Debt (Briefing
Sheet 5) (2009)



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 Many people with long term conditions already struggle to meet health
 related costs. As well as being more likely to have lower incomes,
 people living with long term conditions face greater health-related
 expenses including, multiple prescriptions, higher transport or
 childcare costs due to accessing services more frequently, higher
 heating bills as a result of spending more time at home, and
 specialised equipment, food and clothing.

 While some essential products/services are exempt from tax, this is
 not the case with everything that a person with long term conditions
 needs to ensure that they can manage their condition or have a good
 quality of life. The table below shows the increased cost of typical
 household items due to the VAT rise:

 Table 1: The impact of a VAT on the cost of typical household items9

                                Before          At 17.5%               At 20%            Difference
                                 VAT               VAT                   VAT              between
                                               (additional           (additional           17.5%
                                                   cost                cost of            VAT and
                                                 of VAT)                VAT)                20%
                                                                                             VAT
Low cost small                 £127.65           £149.99               £153.18              £3.19
dining table with                                (£22.34)              (£25.53)
four chairs
Children’s bed                 £152.33           £178.99               £182.80               £3.81
frame and mattress                               (£26.66)              (£30.47)
Electric oven and              £212.76           £249.99               £255.31               £5.32
hob suitable for                                 (£37.23)              (£42.55)
family use
Washing machine                £238.29           £279.99               £285.95               £5.96
                                                 (£41.70)              (£47.66)

 VAT exemption on certain goods and services often does not reflect
 the Government‟s commitment to healthy living. For example, a fruit
 smoothie is considered a luxury good (20 per cent VAT) whereas
 processed and frozen foods are exempt from tax.10 Furthermore, rates
 on products that would help people to self manage and live
 independently are not VAT exempt. For example, Mobility aids for

 9
   Graham Whitham, „Why must VAT not go up?‟ Policy Briefing, Save the Children (April, 2010)
 (http://www.savethechildren.org.uk/en/docs/Why_VAT_must_not_go_up.pdf) - Table 3 note - the table
 assumes that the cost of VAT is being passed on to the consumer in all instances.
 10
    HMRC, Rates of VAT on different goods and services, (http://www.hmrc.gov.uk/vat/forms-
 rates/rates/goods-services.htm)



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older people are at a reduced rate of 5 per cent tax, but are not
exempt.11


Welfare reforms could put greater financial pressure on those living
with long term conditions. Changes to the Disability Living Allowance
and Independent Living Fund could mean people have less support to
ensure they can manage their conditions effectively/live
independently/have a good quality of life. Furthermore, many people
who currently qualify, could lose their entitlements altogether. Out-of-
work benefits, for adults of working age without children, are already
worth 20 per cent less than in 1997.12 The VAT increase could mean
increased expenditure on decreased income.


Those living with long term conditions, who are already more likely to
be living in poverty and experience financial hardship, will be among
the worst affected.


                    The increase of VAT to 20 per cent will
                   hit the poorest tenth of the UK more than
                       twice as hard as the richest tenth.



Recommendations

        Welfare reforms, cuts to services etc. should take into account
         the extent that increased VAT will impact upon the quality of life
         of people living with long term conditions.
        The need to combat the strong correlation between health and
         poverty through increased access to employment and poverty
         reduction schemes.
        Products and services that are VAT exempt should better reflect
         the needs of people with long term conditions to maintain a
         healthy lifestyle, manage their conditions and experience a
         higher quality of life.



About LTCAS

11
   HMRC, Rates of VAT on different goods and services, http://www.hmrc.gov.uk/vat/forms-
rates/rates/goods-services.htm
12
   The Poverty Alliance website – January 2010 (http://www.povertyalliance.org/)



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The Long Term Conditions Alliance Scotland (LTCAS) is an independent
charity funded by the Scottish Government. LTCAS has nearly 200
member organisations from across Scotland and aims to ensure the
voice of people living with long term conditions is heard by policy
makers and service planners.

LTCAS‟ vision is for a Scotland where people with long term conditions
enjoy, not endure, full and positive lives, free from discrimination and
supported by access to high quality services, information and support.
LTCAS would be very happy to discuss any of these issues further or to
provide detailed briefings.

For more information please contact Shelley Gray, LTCAS Director of
Policy & Campaigns on 0141 404 0231 or shelley.gray@ltcas.org.uk.

www.ltcas.org.uk




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