Government needs to raise VAT to 20%, says Credit Suisse
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The new Government may be forced to increase VAT to 20 per cent to be able to afford pledges made in its first manifesto.
According to Credit Suisse, the measures proposed by the coalition Government, namely an increase in employer’s threshold for National Insurance contributions and the increase in the nil-rate Income Tax band to £10,000, will cost nearly £10bn, even after plans to cut £6bn from the spending budget, to introduce a bank levy and to make a £2bn realignment of Capital Gains Tax.
Credit Suisse analyst Robert Barrie says: “The figures contrasts with the coalition agreement’s assertion that there will need to be ‘a significantly accelerated reduction in the structural deficit’, with the new Office of Budget Responsibility ensuring that the numbers add up.”
Barrie says one way to get the numbers to add up would be an increase in VAT up to around 20 per cent from the current 17.5 per cent levy, which would yield around £11bn.
Barrie says: “That could take place over more than one year and, of course, would result in inflation being higher than otherwise.
“A fiscal policy programme that’s likely to involve substantial increases in indirect taxes and a central bank that seems remarkably tolerant of upside inflation surprises suggest that investors might be well advised to take out inflation protection in the UK.”
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Readers' comments (2)
Michael Fallas | 13 May 2010 10:31 pm
V.A.T should rise to 20% or even more say 22% but on luxuty good only in my view.
Not on fuel or low cost enery efficient cars or other essential everyday goods or services. Luxury goods yes as it is a voluntary way in which to raise tax but to do a blanket increase I think could be self defeating.
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Anonymous | 14 May 2010 9:00 am
partially agree with Mr Fallas but i'd rather see a lower tax on everything "standard" and possibly a maximum of 20% on uber luxury goods... the UK is very cheap in many respects despite its reputation as an expensive country and i dont see why 2-5% tax couldnt be applied to everything in a supermarket. I always think we should tax everything less than tax a few things more...just my 2 cents
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