VAT increase expected
The prize for the victors of the recent power struggle is the task of dealing with Britain’s £166bn budget deficit. This inevitably means an increase in taxation rates, but the government will be mindful that too great a rise would harm the fragile economic recovery.
Aside from a simple climb in tax rates, overall taxation revenue will increase as the economy expands. It’s a fine balancing act between creating the low-tax conditions for growth then reaping the longer term revenue benefits, or increasing tax earlier to pay down the national debt and save interest costs.
Most commentators and experts agree than an increase in VAT is probable. Arguably, expectations for a rise beyond 17.5% were set when the rate was temporarily reduced to 15% by the previous government. The new coalition may view a VAT hike as good value in the trade-off between pubic approval and revenue.
An emergency budget is expected within weeks, although any change to the VAT rate would not be before the end of the year.
