Economy, Press, The Regions, Welfare to Work

– What will the VAT Rise Do?

Many people have criticised the recent VAT rise from 17.5 to 20%. According to Labour leader Ed Miliband, the 2.5% increase will cost up to 250000 jobs, and the average family household willpay around an additional £400 a year.

… But what will the VAT rise really do? A family, on a total income of £70,000, will have to pay an extra £10.80 per week in VAT, or about £561 for the year.

But the VAT rise won’t just affect general spending. Petrol costs will / have hit a minimum of £1.20 a litre. Added to the January 1st fuel duty increase, a litre of unleaded and diesel has increased by more than 3.5p, and many broadband and phone providers have begun to pass on the rise as well. AOL‘s broadband-only contract has increased from £14.99 per month to £15.31 a month – a rise of £3.84 over one year. If you were to add Sky‘s One TV Pack and a BT line rental and calls package (unlimited weekend call plan) to the mix, you would be spending an extra £13.56 per year thanks to the VAT rise.

These new expenses will likely hit the poorest hardest. The Robin Hood Tax campaign group, which includes Barnardo’s, Oxfam and Save the Children, has said the 2.5 % rise in VAT will increase families’ average spending by £31 a week.

“The poorest families in the UK, who already struggle to afford basic household items, could be pushed over the breadline with an annual VAT bill of at least £1,600.”

A third of small businesses, according to price comparison site Uswitch, expressed concern that the tax rise would lead to a drop-off in trade. Implementing the VAT changes also carries costs, said Uswitch‘s small business energy expert Jake Ridge.  “Small businesses are battling to recover from the recession. The VAT hike will not only cost much money to implement, but it will also make trading even harder.” In a similar survey of members by the Federation of Small Businesses (FSB), 70% said the rise would have a detrimental impact on their business. It is unlikely that small businesses will be able to absorb the tax increase, so they may have to cut back on recruitment.

In support of the Coalition however, Prime Minister David Cameron made it clear that this was unavoidable as the last Labour Administration had left this country in an awful financial predicament. Mr Cameron explained that the rise in VAT is and was preferable to Labour’s National Insurance  increase or Tax on jobs.  To do otherwise would result in more pain and it would see Britain’s credit rating plummet.

David Cruickshank

yesMinister’s News Researcher


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