Accounting Firm Predicts Rise In UK VAT To 20% By Autumn 2004

by Jason Gorringe, Tax-News.com, London

22 October 2003

Value Added Tax in the United Kingdom could rise to 20% from its current level of 17.5% by the latter half of 2004, according to accounting firm BDO Stoy Hayward, which predicted that the government will be forced to raise tax despite recent revisions to growth forecasts by the Office of National Statistics.

Increasing VAT by an extra 2.5% could net the Treasury an additional £9.5 billion per year in revenue, BDO has calculated, and Chancellor Gordon Brown may find this a safer option politically than changing the status of zero-rated items, which the government has pledged to leave alone for the duration of the current parliament. It would also be a less unpopular measure than raising income taxes.

"VAT has always been a political hot potato because it impacts directly on the consumer and can lead to overnight price rises," Stephen Herring, tax partner at BDO Stoy Hayward explained. "But when the Chancellor presented his five economic tests back in June, Treasury studies suggested that making VAT flexible would help to iron out creases in the economy should, for example, Britain join the Eurozone."

He continued: "So an overall increase of between 0.5 per cent and 2.5 per cent is certainly not pie in the sky and we predict that by autumn 2004 the Chancellor will have done just this if the growth in tax revenues remains weak".

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