All Signs Point To UK VAT Hike

by Robert Lee, Tax-News.com, London

17 May 2010

According to a survey of leading economists, the new coalition government in the UK will increase value-added tax (VAT) in the forthcoming emergency Budget with the increase coming into force by the end of 2011. 24 of the 29 economists surveyed expect the rate to rise under the new coalition government. The economists who were surveyed have all been used at one time or another by the Treasury.

The favoured prediction is a hike in the standard rate from 17.5% to 20% in 2011. Such an increase would bring an extra GBP11.5bn (USD16.7bn) a year into the Treasury coffers.

Justin King, the Chief Executive of one of Britain’s biggest retailers Sainsburys, urged the government to give retailers ample notice of the planned implementation of any increased VAT rate. King said that he thought it likely that retailers will try to absorb some of the increase. He added that “we'd like lots of notice, we'd like any change at a sensible time of year [ie not around Christmas] and stability for the long-term”.

The rise would cost families an average of GBP425 per year and would affect virtually all areas of consumer spending apart from food shopping. The move would also be an additional headache for small high street retailers who, unlike their larger competitors, would struggle to absorb the 2.5% hike.

One bit of good news for employers was the decision by the coalition government to scrap the planned 1% National Insurance increase on employer’s contributions.

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