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Tuesday 18th of May 2010
May 13, 2010    

VAT to hit 20% under new coalition Government

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by Kay Murchie

Leading economists have said VAT will rise to 20% by the end of 2011 under the new coalition Government.

According to a BBC survey, 24 out of 29 economists used by the Treasury expect the sales tax to rise, in order to try to pay back the UK’s fiscal deficit.

Prior to the election, all three party leaders said a VAT rise was possible and it is now set to be a certainty under the new Government.

At the end of 2008, the Labour Government slashed VAT from 17.5% to 15%, in attempt to revive the High Street, which was flagging at the time as the UK was in recession.

It then reverted back to the 17.5% rate on 1 January 2010.

Returning to the survey, the majority predicted a rise from the current 17.5% to 20% before the end of 2011. Analysts say a 20% rate would bring in an estimated £11.5 billion a year.

Yesterday, in its quarterly inflation report, the Bank of England’s Governor, Mervyn King, endorsed the new Government’s deficit reduction proposals, calling them “strong and powerful” and said the plans for spending cuts worth £6 billion this year were “sensible”.

However, any changes to VAT and other taxes will be outlined in an emergency budget to be announced within the next few weeks.

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