More price increases

[Terry - Somerset]

Wikipedia:

Purchase Tax was a tax levied between 1940[1] and 1973[1] on the wholesale value of luxury goods sold in the UK. Introduced on 21 October 1940, with the stated aim of reducing the wastage of raw materials during WWII, it was initially set at a rate of 33⅓%.

Rates proliferated and it became increasingly complex which rates applied to which products. VAT by comparison is fairly simple and with accounting largely based on IT systems, should now be fairly straightforward to maintain and report.

 

[Jonm]

With everyone in lockdown the gas/electric use increased dramatically.
People used to the heating provided free at work, thought it ok to have the same at home.
Then the bills come in and many cannot afford it.

Look at all the material cost increases, should all the merchants be allowed to go out of business.

Hopefully supply and demand will return some level of sanity, but all these businesses have lost a years revenue (merchants). they are all blaming their suppliers but the rises are cumulative, raw materials up 30% merchants profit margin adds 100% then VAT adds 20%.
All adds up to a 60/100% 'retail' increase.

Wages are also rising rapidly to a shortage of workers, isolating/Brexit.

I think you are triple counting here. Using your figures

retailerer buys for £100
sells for £200 plus vat (100% markup)
total £240

prices go up 30%
retailer buys for £130
sells for £260 plus vat (100% markup)
total £312

£240 plus 30% (£72) is £312.

The above assumes that all the retailers other costs have gone up by 30%, his markup has gone from £100 to £130.

 

[Phil Pascoe]

His % mark up hasn't changed.

 

[sploo]

So they would pay us interest on the money we borrow from them, cannot imagine anyone doing that and if you have savings you would be better spending now rather than later as your buying power will be falling.

Nah, they won't pay you, or me, interest on money we borrow. There's usually small print that clamps things at 0% if rates drop negative. At a larger (business to business) scale it might work like that, but not for us plebs

 

[Spectric]

But who is daft enough to lend money for zero gains, in fact they will be losing so maybe this will put the brakes on house prices and help make people think of them as their home and not an investment.

 

[Jonm]

His % mark up hasn't changed.

I was replying to

the rises are cumulative, raw materials up 30% merchants profit margin adds 100% then VAT adds 20%.
All adds up to a 60/100% 'retail' increase.

Wages are also rising rapidly to a shortage of workers, isolating/Brexit.

The suggestion being that 30% increase in raw materials translates to 60/100% increase in retail cost.

If buying price goes up by 30% and markup markup remains at 100% then the retail price goes up by 30%.
If buying price goes up by 30% and selling price goes up by 100% then markup has increased from 100% to over 200%.

 

[kevinlightfoot]

Just spoken to Arnold Lavers.

MDF has risen 25% and going up a further 40% next month.
Quoted £ 68 plus VAT for 1 x 22mm MR sheet.

OSB has risen 60%.

Arnold Lavers tried to rip me off for some oak only a couple ow weeks ago,their prices are ridiculous.

 

[D_W]

I was replying to

The suggestion being that 30% increase in raw materials translates to 60/100% increase in retail cost.

If buying price goes up by 30% and markup markup remains at 100% then the retail price goes up by 30%.
If buying price goes up by 30% and selling price goes up by 100% then markup has increased from 100% to over 200%.

They may be matching prices to futures under the assumption that doing otherwise would leave them unable to buy replacement stock.

Interestingly, gas stations here often do this, but they tend to lower prices based on the spot market making curious claims that illuminate that they "won't be able to refill tanks based on spot market prices", but they're not concerned with the fact that they're collecting enough to do it several times on spot market prices when futures drop.

 

[D_W]

(or translated, I think pricing strategies are generally gamed so that volatility and associated confusion creates temporary high profits with a supposed rational excuse - some of the box stores here have gotten a little exposed as lumber futures went up and 2x4s tripled in price. As in, attempting to snag customers on the back side of the price hike after futures and spot have already gone down makes one retailer look bad when another one halves their prices literally weeks or a month earlier).

In the US, the idea of creating repeat customers through some kind of loyalty is long gone, though, and it's not like you can call and get an honest answer (sometimes you will get a refund because the return policies allow no-reason returns and all you have to do is say "I'll just return it, then, and go buy at retailer B". This isn't offered, though, you have to say what you're going to do and make it unrewarding for the retailer).

 

[Spectric]

In the US, the idea of creating repeat customers through some kind of loyalty is long gone

Same in the Uk, but we do have some that get a following because they are customer focused and do care about delivering quality but many DGAS and others only if you spend at least a certain amount regular, like Travisty Perkins and the other big merchants who get plenty of sales through big buyers so the average joe is not important to them.

 

[D_W]

The key to finding good service is a retailer looking to increase market share. Once they are established and start looking at their data, they all default to finding uneducated customers that make up 90% of the market. Data analysis has killed the idea that customer continuity is really profitable and the few seemingly dedicated types here (LV and LN are good examples - but there are examples across the board re: woodturning supply places here that have super awesome prices for exotics and such and are very knowledgeable).

In the US at least, not all of the mom and pop stores were really that great, either. Many were entitled - feeling, because distributors protected them unless people were willing to drive, they wouldn't refund for poor items, and they paid their employees horribly. They were an easy target for early iterations of box stores (which had better goods and better prices here - they were in the growth phase).

 

[J-G]

Interesting. With regard to my builder friend, it was a few years ago and I did not go in to details. I imagine he was charging his customer for new build (0%), extension (20%) and probably conversion from non residential to residential (5%). Not sure what AFAIAA has to do with it.

AFAIAA = As far as I am aware -- I had forgotten about the 'New Build' zero rate & didn't know about the residential conversion issue - I don't have contacts in the building trade

Purchase Tax was eventually also charged on non luxury goods, I was involved because I ran a small printing business and you could hardly consider order books or business cards to be 'luxury'.

On the 25% for boats - I have never needed to enquire though I did at one time avidly read all the 'news' published by HMRC as far as VAT was concerned and don't recall a 'luxury' rate being introduced but I do know that the VAT status of yachts is something that needs scrutiny and good documentation. After all we really are talking 'luxury' items now.

 

[Doug71]

Just spoken to Arnold Lavers.

MDF has risen 25% and going up a further 40% next month.
Quoted £ 68 plus VAT for 1 x 22mm MR sheet.

OSB has risen 60%.

Last week I got 20 sheets of 15mm Medite MR MDF from Lavers for £22.95 plus vat per sheet delivered, thought that was fine, seems like prices are all over the place at the moment.

 

[doctor Bob]

Quoted £ 68 plus VAT for 1 x 22mm MR sheet.

someone is yanking your chain, even with price rises that is truely ridiculous.

 

[Phil Pascoe]

Maybe 22mm is a size they don't stock?

 

[D_W]

someone is yanking your chain, even with price rises that is truely ridiculous.

"if this keeps up, I'm going to get my own termites and glue their poop together myself!"

 

[Jonm]

AFAIAA = As far as I am aware -- I had forgotten about the 'New Build' zero rate & didn't know about the residential conversion issue - I don't have contacts in the building trade

Purchase Tax was eventually also charged on non luxury goods, I was involved because I ran a small printing business and you could hardly consider order books or business cards to be 'luxury'.

On the 25% for boats - I have never needed to enquire though I did at one time avidly read all the 'news' published by HMRC as far as VAT was concerned and don't recall a 'luxury' rate being introduced but I do know that the VAT status of yachts is something that needs scrutiny and good documentation. After all we really are talking 'luxury' items now.

I looked up the 25% vat rate. Initially Vat was set at 10%, Dennis Healey introduced two rates. Between 1974 and 1976 the rates were 8% and 25%.
“Higher rate introduced in November 1974 to apply to petrol (but not derv). In May 1975 this was extended to apply to a range of other consumer goods, for example domestic electrical appliances, radios, TVs and hi-fi equipment, furs and jewellery.“

I have remembered, it was the towing hitch (not ball) that I paid 25% vat on, it was for an ordinary small trailer but because I “could” use it on a boat trailer I was charged the higher rate. Shows the difficulty of two rates. I still have the trailer and hitch.

I found your comments on purchase tax interesting, it obviously needed simplifying. I can now see a problem with a simple sales tax. How to tell who is a final customer and who is trade and is going to charge their customer sales tax.

For example, I go in to say screwfix and buy some glue, screws and paint. I then go in to the builders merchant and buy some wood. I pay sales tax on both transactions.

A furniture maker goes in to the same shops and buys the same items. He or she should not pay sales tax. They then use the items to make some furniture which they then sell and charge the sales tax.

The problem is that screwfix and the builders merchants have to sometimes charge tax and sometimes not, depending on the customer. I can see that being very difficult and open to tax fraud. So maybe VAT is not as bad as I think, it is difficult to avoid.

 

[TRITON]

Will this lead to the stealth theft of entire trees. A coule of furniture makers hatching a plan on whatsapp and slinking off into the forest, saws in hand.... :?

 

[J-G]

...Dennis Healey introduced two rates. Between 1974 and 1976 the rates were 8% and 25%. ...

Nearly correct - it was between July '74 & June '79 - I was having difficulty remembering there ever being a 25% rate but now I've done the research I ought to have done earlier !! (All my past comments are from memory) I recall that the STANDARD rate was never 25%, this was the 'Higher rate' which existed for the 5 years when the Standard Rate was 8% -- and even that was cut to 12½% -- I've never sold petrol or 'luxury goods' so the fact had not been retained, though undoubtedly I was aware of it at the time -- it was 40+ years ago after-all

During that 5 year period I was selling DIY goods from 2 high street shops in Coventry.

 

[hairy]

Hi

I wasn't being serious because I think no-one could have any sort of definitive opinion for a generation or two yet.
But, the pound has indeed risen since we left at the beginning of this year which your graph does show but not very clearly because of the timescale you've shown. The big peak prior to the Brexit vote was certainly a blip over the period since 2008 at least.

Most anti Brexit commentry in the press talking about how the pound has plummeted usually pick a start date of just before the Brexit vote within that blip because that shows pretty much the worst scenario.

No point worrying about it though

Not sure if you are serious. At the moment brexit has not increased the value of the pound which would make things cheaper and it may have decreased the value of the pound, difficult to tell. As for other effects we will have to wait and see as we emerge from coronavirus and as the years (decades) unfold.