VAT ‘will rise’ to 20 percent

As we reported on the first full day of the election campaign when M&S boss Sir Stuart Rose argued for a VAT rate rise on Radio 4’s Today programme saying that it was the only credible option for business when arguing against the planned NI changes.

Now, the BBC is claiming to have spoken to, the 29 independent economists currently used by the Treasury to assist its forecasts, 24 said they expected the rate to rise in the coming parliament.

The majority predicted a rise from the current 17.5% to 20% to be unveiled in the emergency budget set be announced 50 days after the new government took over power, and be in place by the end of this year. Analysts say a 20% rate would raise an estimated £11.5bn a year.

VAT was temporarily cut last year to 15% to aid the economic recovery, an act seen by many as being very short-sighted and destined to require an increase to recoup the loss in revenues for very little return or boost to the spending position of consumers.

The tax on consumer goods is seen as an attractive way to boost the government’s tax income, with cutting the country’s budget deficit a priority for the new Conservative-Liberal Democrat coalition.

There are 35 economists listed as independent consultants for the Treasury’s UK economic forecasts. It is reported that six declined to take part in the BBC’s survey.

When the coalition government tok over power it said that it wanted to see “a significantly accelerated reduction” in the country’s borrowing, with £6bn of cuts planned in the first year.

Economist Azad Zangana, from Schroders, who is predicting a rise in VAT to 19%, said that the UK economy is probably strong enough to withstand the expected cuts and tax rises.

“While earlier cuts in public spending are inevitably going to dampen economic growth, the UK recovery appears to be gathering pace,” he said.

He added, however, that £6bn in public spending cuts were only “a drop in the ocean” compared to what would be required to tackle the current £166bn deficit.


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