Impact of Temporary VAT Cuts

Hello and welcome to More or Less, your effortlessly cool guide to the numbers all around us in the newews in life. This week, two things that are rarely combined, but maybe they should be high speed trains and roller coasters We ask why the budget for HS two keeps overrunning and we'll also ponder the impact of a temporary VAT cut on roller coasters and other fun things And the team are chasing me for a marathon update. if they can catch me, that is Loyal listener Allison got in touch to ask us to look into recent reports about something called y life expectancy Here's the headline from the BBC newews story UK healthy life expectancy falls by two years in past decade The title is pretty self explanatory. The claim comes from an analysis by the Health Foundation, which found that healthy life expectancy is now just under the age of sixty one for both men and women In the UK That's two years lower than a decade ago. However, our listener Allison and many others who emailed had they healthy skecepticism about the number Our vitality correspondent, Lizzy McNeil has been figuring it out. Hello, Lizzy. Hi Tim Try again. Hi, Tim So Lizzy, this term healthy life expectancy what does it actually mean Put it this way Does it mean? that someone aged fifty two can expect nine more years in perfect health and will then collapse into a morass of health conditions so serious that they might as well be dead I'm asking for a friend. Yeah, I mean, it sounds like that, but you can reassure your friend that is really not. Yeah, so the figures used by the Health Foundation came from an analysis by the ONS. The Office for National Statistics. and presumably they were looking at data from medical records and GP records and hospital admissions. Nah. It's based on what people say about the health in surveys. Here's friend of the program and an actual actuary at LCP Stewart McDonald To calculate healthy life expectancy, we combine actual observed death rates with survey data on whether people say that they're in good general health In the UK, this is based on the survey question How is your health in general Pe on Sar on a five point scale are very good Good S ad and very bad and to Get to the calculation of healthy life expectancy. Anone who answered good or very good is treated as being in good health Anyone that answered fair, bad or very bad is treated as not in good health So it's self reported health and there aren't many options. And the fact that people who say their health is fair aren't counted in the healthy life expectancy figure means it's quite a high bar. Y And because it's self reported, it's heavily influenced by people's mood on the day of the survey and how healthy they think they should be The subjectivity of this healthy life expectancy calculation is its key limitation different groups may interpret and do interpret the health categories differently, depending on their age, their generation, their culture, their expectations around what good health looks like and their socio economic background So the way this is worked out means there's nothing stopping someone ranking their health as fair one year if they cold or a bad back or maybe just the grumps. and then good, the next time they're asked if they've had a lovely night's sleep or the suns shining differentiff to life expectancy because you can become unhealthy and then you can become healthy again. You can't become dead and then become alive again. Yeah, not so much. So the ONS have just tried to calculate how many years on average a person is likely to rate their health as good or very good across a lifetime, not when those years actually take place Healthy life expectancy of sixty does not mean that people are healthy until age sixty and then suddenly becomes unhealthy. It means that on average, across the population, they're spending sixty years in reported good health across their full lives. And as an example, somebody might report poor health in their twenties and thirties thenen they might recover later and spend much of their older age. in good health. Hey So that also means that people who report being in poor health when they're young pull down this healthy life expectancy figure. Yep. So that can make a real difference with the numbers because we know that poor mental health' a problem for young people in the UK. Yeah, so that's a really good point. John Berne Murdoch, Fancial Times data journalist and yet Another friend of the program. We're so popular. I know right. Anyway, John had the same thought as you, so he dug into the figures used by the ONS and combined them with data from other surveys to see the overall mental and physical capacity trends across the different age groups over the past ten years to be clear, these trends aren't tracking actual diagnosed health conditions. John's still using what people say about their lives. on the physical capacity scores. You tend to see pretty stable trends for all age groups. So this is true for people in their teens and twenties, it's true for people in their fifties and sixties. And if anything, we actually see a slight improvement in the answers people are giving about specific physical health functioning over that same period Whereas if we look at people's responses to questions about mental health, which refers to their worries, anxiety, depression, the extent to which The mood and mindset is sort of a struggle for them. this is where we see this marked decline for young people in particular In John's broader survey data, the decline in mental health is largest in the people aged sixteen to twenty four, and the decline gets smaller as the age gets higher And when he ran a statistical analysis on the overall trend, the pattern was clear What we see is that the physical health score has had very little impact on this decline in self reported general health, Whereas the mental health scores that the responses to those questions track very, very closely with what people are saying on their overall health questions. And this is where the subjective nature of the survey data is really important. So John pointed out that an increase in awareness and cultural acceptance of mental health issues can lead to more people identifying and being open about their mental health struggles So they're more likely to report these issues, which would show up as a deterioration of healthy life expectancy bad for healthy life averages, but in other contexts arguably a good thing. This also means the data is vulnerable to being skewed, as this awareness and acceptance may not have spread evenly throughout society. Healthy life expectancy could be tracking an actual decline in mental health or it could be tracking different ways of thinking about mental health. So the fall in healthy life expectancies driven by more young people saying their mental health is fair or bad and some unknown proportion of that is tracking changing attitudes towards mental illness. Yeah And it's not because people are getting chronic illnesses any earlier in their sixties. Again, ye Well, the obvious question at this point is how people who hit the healthy life expectancy age in their early sixties I'm actually doing it Basically They're doing okay If we're talking about what's changed over recent years, during which we've seen this fall in healthy life expectancy People in their sixties and above are not the answer. They're actually doing reasonably well, if anything slightly improving. Around two thirds of people in their early sixties report that they're in good health And actually, right up until the late seventies, a majority of people report that they're in good health So the boomers are blooming. Now, despite the drawbacks we've discussed, Stewart says that healthy life expectancy can still be a useful tool in understanding where the public are at For example, the huge differences in this measure between high and low income areas does tell you something important onlyn useful if you know what's going on under the hood But John still isn't convinced Yeah, look, I'm not a huge fan of it. I don't think there is a good reason for us in a country like the UK where we have all this data to try to lump everything together into this one statistic that has these flaws It does seem like a measure that's fine if you know what it means, but it's misleading if you don't. Yeah. And to be clear, none of this means that the UK's general health is in tk top shape It's just not entirely clear what this particular stat is telling you about that. Thank you Lizzie, and thanks to Stuart McDonald and John Byrne Murdock I really feel like we've got the old band back together with that one. Wh a second him You think he can escape without telling us about the marathon chew the sting. H So, Tim Did you break the marathon Oh no the marathon broke me. Wow. U did you finish I did finish, but I didn't come in in under four hours. Oh well, you know, it was probably just a really hard marathon on a really hard day Yeah, I'd like to say, but actually it was the fastest marathon in history. Oh, wow. What a thing to witness? I didn't really witness it did I? It was hours behind. But in fact, it was quite a lot hotter by the time I got round to finishing it. So what time did you do it in? I did it in a four hours, twenty six minutes and a few seconds. Oh o nice. You achieved your goal. Wait. Yeah, yeah, yeah. let me play you the whole sting Wit. Cers Then a horse. I'm not sure we're fooling anyone, but I would like to say thanks to all the self described loyal listeners who were kind enough to sponsor me. We raised almost twenty thousand pounds for the Teenage Cancer Trust, which is a cause very dear to my family. So thank you to everyone who contributed Thanks to you Lizz The UK is famous for many things monarchy Rin Sarcasm And of course, being the forefathers of locomotion We hadn't dipped our toe into the realm of high speed trains until Chess one, that's the high speed connection between London and the Channel tunnel And it came in on time and under budget As any movie executive knows, once you've had one success, you need to follow it with another, such as Toy Story two, the Godfather Part two, and of course Highland or two But unlike those cinematic giants, HS two has not lived up to its predecessor In fact Just last week, the government released a new report stating that HS two is projected to cost twice as much as originally predicted and be hundreds of miles of track shorter With me to explain the story of the little high speed train that couldn't is the presenter of Derailed The story of HS two Kate Lamball Most importantly, You used to be serious producer more or less. I was And we miss you. my s Welcome back. for a special guest appearance So HS two This is a numbers program. You will remember. what were the original cost estimates for HST? So if we go all the way back to twenty eleven, the estimate for the whole route, which then was London to Birmingham and then that Y shaped route up to Leeds in Manchester That was thought to cost thirty two point seven billion pounds The government is now estimating eighty seven point seven billion pounds to one hundred two point seven billion pounds So how much of the original budget have they spent? So they've so far spent forty six point eight billion pounds. Now some of that went on the plans for Phase two, which is the route north of Birmingham, which is now not happening. So on the route from London to Birmingham, it's been just over forty four billion. So about half of the total predicted budget now. So they've basically already spent the original budget We will never get trained to Leeds or to Manchester And we're not that close to getting trains between London and Birmingham either. Well if you put it that way too, it doesn't sound great. It seems that there's no end to the number of times this estimate can increase. So talk me through the various steps in This number creeping up from thirty something billionars to over one hundred billion while the actual railway line gets shorter So early on in the process, there's a lot of guesswork. One former chair of HST told me that costs were set at a time when only three or four percent of the facts about the railway were known So for example, they initially assumed that any land owned by national raail would be given to the project for free. It wasn't. They initially thought they'd need twenty five square kilometers of land. and they realized they need seventy square kilometers of land. There's also assumptions about how much buildings would cost when you need to go in. So one former council leader in London when it's running into Houston talked to me about it being what they call PIpOore preparation. So they had meetings about how much certain blocks would cost. They thought, well, it's a social housing block, how much can it cost? But this is land in central London. It cost more than forty million pounds So there's a lot of this initial escalation is basically figuring out, oh God, we actually need a lot more than we think we do explains why some of the initial estimates were back into the envelope and badly wrong But then the costs have continued to escalate and that can't just be poor preparation at the start. So what we then go into is a period of what I'd probably call costly compromise. So essentially, they decide to do this process to get HS to approved called a hybrid bill. It's not done very often at all. And in some ways, it's like a normal government bill, politicians vote on it. But in between those votes, anyone affected by the scheme can go to Parliament and basically campaign for how they're being affected and for changes to be made to the scheme Thousands of assurances were added to the bill ten thousand pounds to renovate a drinking fountain, a quarter of a million pounds to insulate a church, half a million pounds for a new park. in Aylesbury, tens of millions for a community fund that funded irrigation for bowling greens, solar panels for villages. So basically all these side deals that aren't necessarily, well they're not anything to do with the railway. They're just to do with getting people who have some kind of veto power to stop making a fuss and say, okay, you can build it. Essentially. And most expensive of all, there's the tunnels. So currently, there are so many tunnels, cuttings and noise barriers that on a forty nine minute journey from London to Birmingham, passengers are only going to be able to see the countryside outside the window for nine minutes. They're still paying for extra planning officers to support councils to carry out this work, and there's still opposition and delays which is also causing increased costs up to tens of millions of pound. They keep increasing the estimate And by twenty nineteen, they think it's going to take almost seventy four billion pounds to do the full leg, which is the equivalent of about ninety five billion in today's money And then something else hits them, which is the contracts. And I know what you're saying. Tell me more about contracts, Kate, they're fascinating. That is exactly what I was thinking T. They're really important. R So twenty seventeen, they get Royal Ascent and they sign the first contracts for the civil Egineering, which is this really important work to clear the land, build all your bridges, all the basics you need to do But instead of saying, this is what I want you to build for this price They start with the companany's help drawing up the detailed design, drawing in every single support structure, every rivet. all of those engineering details And what people see happening is that they see companies gold plating, designing extra support structures where frankly, they might not be needed And the reason they think this happened is because companies knew that after that contract was signed, They'd have to take on the risk of any additional cost So if things ended up costing more than the initial calculation, they're the ones footing the lion's share of that bill So the best way to protect yourself is to make that first estimate the bit HS two we are going to cover as high as possible. Okay, so that sounds bad because we don't like plating In compensation, the taxpayer is not on the hook for unexpected cost increases. and yet somehow there have been unexpected cost increases... An effort to protect taxpayers, but within a year of contractors taking on this detailed design work, the forecasted prices were eighty three percent above the government's target So they think, okay, we can't do this anymore. We're going to renegotiate it What they do is when they renegotiate it, instead of the contractors being liable for any future cost increase, is that risk is going to be paid by the government Now later chairs of Aers two describbe this reversal as extraordinary because the gold plated design is already done and now the government are taking on all the risk of inflation and the unforeseen And They signed these at the beginning of twenty twenty And so as COVID runs its course and Russia attacks Ukraine, the price of raw materials and energy soars. And in the three years after twenty twenty, it's estimated these revised contracts increase the cost of HS two by six billion pounds Online, people have been saying a lot of things online that in dollar terms, HS two is fourteen times more expensive per kilometer than French high speed rail and it's ten times more expensive per kilometer than Italian be right over. It's certainly true that HS two is expensive for what it is. If you think about it, London to Birmingham is one hundred and forty miles and if we take the government's top estimate of just over a hundred billion pounds, you can kind of figure out how many billion per mile you're getting at that rate Making international comparisons though, is a very, very difficult thing to do. Part of this is just to do with the way Britain is. if you think about it, Britain is this really small, highly populated island Right? as compared to France, which is huge and has much more open space There's also a question of just how difficult it was to thread a high speed line across Britain In order for trains to run really, really fast, the track has to be as straight as possible And what the original engineers did was they basically traced all the possible ways they could get a straight line across Britain It looks like a piece of knitting that original diagron And it's really difficult because if you follow initial motorways, the track would be too curvy. If you follow existing railway lines, you would have to flatten commuter towns. So they've had to ace it in this really, really difficult way. and it meant going through the Chilter's, this area of outstanding natural beauty And it's actually really hard to draw a line across Britain without hitting something important. right? If you just take a rule and put it across a map, you normally hit something. On top of just the fact that you're going to hit something, it's going to cost you money to get that thing out of the way. we're also a property owning island. We're a democratic island. We give homeowners and people who have an investment in this country a lot of say within what's happened and we pay them compensation. Now that you can consider to be perfectly appropriate, but it does cost money Is that not true for France? I mean, I understand the comparison with would say China, but I mean They have property in France, right? And France is a democracy. Yeah, but France is a much bigger space, they can run through much larger areas of empty countryside, which is perfectly flat. You're not having to go through as many hills, you manage to go through flat areas. And also France, a lot of French high speed trains terminate outside major cities. They don't go right into the centre like we're trying to do with HST So HS two has suffered from a myriad of problems, a country not being designed for straight lines, the government's desire for fair and democratic process, warar, a pandemic and some really very questionable decisions. Extraordinary indeed. Thank you to Kate Lambbell, and if you want to hear more from Kate and you like listening to in depth exposure of huge national infrastructure problems Tune into her new series on radio four, Rinsced The water industry It's available on BBC Sounds It's half term Andlike many an exhausted parent, I'm try to find ways to keep my children entertained over the school break My children I mean, fully grown up and allegedly capable production team Josh wants to visit an aquarium Nathan wants roller coasters, Lizzy's vanished into the woods again, and Richard demands Watsits constantly The summer holidays will be even worse. Is this? I can today announce a temporary cut in the rate of VAT on summer attractions from twenty percent to five percent over the summer holidays Manner fromom Heaven. The government has stated that the standard twenty percent VAT rate on tickets to zoos, children's theatre shows, films, theme parks and other attractions will drop to five percent between june the twenty fifth and september the first Is it a big number? or indeed Big saving Well, if a ticket to a theme park costs sixty eight pounds on the gate, and it does, we've looked then this reduction would mean that it should cost you around ten pounds less Welcome News for many Cly. Tulie Maybe not Our apologies, but once again we are the pooper of parties, the Rin on yourour parade and the steeler of Thunder. Us, exactly, let's land the blame squarely on tax expert Dan Needle of tax Policy Associates A lot of economists who haven't looked at this port think that if you have a cut in VAT in a competitive market, then it's going to be passed on to consumers out There's always a bout. This has been looked at quite a lot. There' been a lot of VAT cuts across Europe, not least because every business worth its salt is always frantically lobbying for some kind of special VAT deal or special VAT cut. So there's a wealth of natural experiments out there P peopleople analised this. hundredundreds of VAT cuts over twenty years. and what they found is that if you have a VAT car that's over a significant chunk of consumer spending Like we had here after the financial crisis, we had a temporary cut in in all of VAT If you do that, it mostly gets passed on to consumers You cut the AT from twenty percent to fifteen percent somethingomething like two thirds of that car actually reduces prices Good news, you might think There's always a bigger butt If you have a cut in something which is a small slice of consumer spending, like one product or one service It does not get passed on And the evidence for that is really robust. This summertime reduced VAT rate is indeed a cut that's a small slice of consumer spending namely days out to the cinema, theater, theme parks and kids' meals Dan says it's not a wide enough range of commodities to ensure the savings are passed on to consumers. In the UK, we've been stung by this before There was the abolition of the tampon tax, five percent VOT on tampons. We looked at that and we could see no evidence it was passed on, posossibly out of that five percent, one percent was passed on, unclear. Then even clearea ebooks ebooks used to be taxed at twenty percent for eighteen There was a massive campaign funded of course by the publishers to abolish it, saying it wouldduce prices for consumers We look at that very clear, it did not reduce prices for consumers. We couldn't see any effect at all. So our studies on those two recent UK examples confirm what's being found across the whole of Europe that if you cut the AT on one product, it doesn't get passed on in the short to medium term. Maybe in the long term it does Unclear So if you go to your local theme park on june twenty fifth and notice you're paying the same as you were the week before What are your rights? Can you whip out your calculator and demand your VAT rebate? There is a difference between The person who pays a tax has what we call the legal instidance and the person who economically is carrying the cost, the economic instidance If I go and buy a chocolate bar I'm not paying VAT, I'm paying the shop. The shop has to pay VAT to HMRC. And what the shop does is it adds on an amount to the price. If it turns out that they charge too much for AT, I'm not going to get any money back. The shop is going to go to HMRC and say, ooy, can you give us some money back We put this to the government who told us, We're calling on businesses to do the right thing and pass on the full VAT savings to hardwking families so they can enjoy life's little treats for less this summer And so far they do seem to have brought people on board Merlin Enertainment, operators of places such as Olden Towers, Legoland and seea life Aquariums, promised to pass on the VAT savings for admissions tickets and children's meals. good news for the summer holidays, but Dan says there is another problem with some of the activities that are enjoying this summer tax cut nameamely Have you seen the queues at Alton Towers? evenven without a tax break Can they actually take more people in the summer I'm not sure they can. So if they did pass the price on That's not going to be more people get to go in probably means that the same number of people will get in but would pay less and there'll be bigger queues outside. So the basic concept is problematic, but as I said, there's no reason to think it's actually going to be passed on For those of you who like a flutter, what is Dan's money on? My money is that some of the very largest providers may be aware that people are watching and may drop the price, but not by the whole amount, and others won't drop it at all. That's my bet. I would put five quid on this, I think We will be keeping an eye on this. Thank you to Dan Needle And that's all we have room for this time. but you can follow us on BBC Sounds or any podcast app Search for more or less behind the stats and catch our Saturday Edition too In any case Please keep your questions and comments coming in to more or less at bb. co. uk. Until next time Pie More or less was presented by me, Tim Harford. The producer was Lizzie McNeal Tom Coles, Nathan Gower, and Josh McMin The production coordinator is Brenda Brown Neil Churchill recorded and mixed the show. Breaking fourour and a half Sting was by James Beard and our editor is Richard Vaden llo, I'm Davidadill From Radio fourour and the History podcast, I'm hosting sixty years of Hurt. A series about football and Englishness in which we try and define what Englishness actually is via the roller coaster history of the England men's football team It includes contributions from various English gentlemen and women, Stephen Fry, David Sieman, England sports psychologist, Pippa Grange and many others. England may or may not win the World Cup in twenty twenty six, but maybe you'll find out why it means so much to us as a country that they might do Listen to sixty years of Hurt on BBC Sounds.