'VAT rise'
July 9, 2010 at 3:34 pm
The Chancellor of the Exchequer, George Osborne’s, announcement of a VAT increase from 17% to 20% from 4 January 2011 has brought about fears of a double dip recession.
The increase is expected to reduce the amount of money the coalition government will have to borrow by generating approximately £13 billion a year.
However, there are concerns that it could cause a rise in inflation and higher interest rates.
According to Simon Newark, a partner at UHY Hacker Young Chartered Accountants, “A VAT hike could push up prices on the high street by around 2%, which would have a very significant impact on inflation. Higher inflation could trigger interest rate rises, risking the spectre of the ‘double-dip’ recession.”
Increasing VAT is likely to affect everybody. Selected food items, children’s clothing, magazines and newspapers will still remain VAT free. But with the majority of products being vatable this means the majority of goods will become more expensive.
The Federation of Small Businesses said that the VAT increase would hurt small businesses in the high street.
And many retailers will feel the effects of the increase as consumers inevitably have less available cash and hold back on spending.
The British Retail Consortium has said that the VAT increase would "hit jobs, consumer spending and economic growth."
However, delaying the increase until January next year would give businesses time to adjust to the new VAT rate. It also means that a pre-Christmas spending surge is likely. Shoppers are expected to take advantage of buying goods and services before the rise takes hold.
