VAT returned to 17.5% in January after an emergency cut to 15% by former chancellor Alistair Darling which supported the economy in the darkest days of the recession.
However, Conservative Chancellor George Osborne is expected by many to hike the VAT rate to 20%, possibly announcing this move as early as his June 22 Budget.
Such a move would follow the example of Geoffrey Howe, who as chancellor for the incoming Conservative government in 1979 hiked the main rate of VAT from 8% to 15%.
Many argue that VAT is a regressive tax, costing poorer households more because they have to spend a greater proportion of their income.
However, the British Retail Consortium’s principal concern is about the impact of a VAT rise on jobs and spending.
Like other business lobbying organisations, it is pressing for the UK’s fiscal deficit to be tackled through cuts in public spending, rather than tax rises.
The BRC declared the economic recovery would be better supported if the new Government halved the deficit over four, rather than three, years.
This is the latest expression of concern that Osborne might hinder the recovery by moving too fast on fiscal consolidation.
The BRC’s calculation of the impact of VAT is based on independent analysis which it commissioned from the Centre for Economics and Business Research.
It said this research had concluded there was “no silver bullet that will allow the Government to raise large amounts of revenue without having a substantial effect on the economy”.
The BRC added that employment, consumption and gross domestic product would all be hit significantly by tax rises.
It called on the Government “to follow through on its recent statements that public spending cuts will be prioritised over tax rises as a route to tackling the deficit”.
The BRC said, in the first year, a VAT rate of 20% would reduce the deficit by £11.3bn.
However it added that, by the end of that first year, there would be 30,000 fewer jobs in the UK, across all employment sectors, than if there had been no increase. After four years, the figure would be 163,000 fewer jobs.
The BRC said that, a year on from raising VAT to 20%, consumer spending would be £1.6bn less than it would have been and, after four years, £3.6bn less.
The industry body pointed out that higher VAT meant lower demand for goods and services as prices went up and companies’ margins were hit, meaning they would have to cut costs to keep trading, and so employ fewer people or hold back on job creation.
The BRC analysis shows a 19% VAT rate would cost 99,000 jobs over four years, while a 22.5% rate would mean 317,000 fewer jobs over the same period.
The BRC calculated that the looming 1% increase in employee National Insurance contributions and 0.5% rise in employer contributions would reduce UK job numbers by 25,000 in the first year. The UK jobs total would be 109,000 down after four years.
Consumer spending would be down by £948 million in the first year and by £2.2bn after four.
BRC director-general Stephen Robertson said: “For the first time we have clear, independent evidence showing VAT and NI increases will have a deep and long-lasting impact on jobs and growth.
“The budget deficit is serious. It has to be tackled but proposals must be judged against the implications for jobs and growth revealed by this new information.”
He added: “ “The main tool has to be cutting non-vital public spending. Removing some of the previously-planned National Insurance increase and signals that the Chancellor will look for an 80:20 split between public spending cuts and tax rises are a welcome start.
“Business growth will get the country out of the hole it’s in, led by retail. The Government must now deliver a route to stability that supports companies and customers by avoiding damaging tax rises.”
No comments:
Post a Comment