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17 February 2010 Business calls for VAT increase

The proposed rise in National Insurance contributions (NICs) should be scrapped in favour of an increase in the standard rate of VAT, a leading business group has argued.

The British Chambers of Commerce (BCC) estimates that raising VAT by 1% to 18.5% would net the Government an extra £4.5 billion. It claims that this, coupled with ‘targeted spending cuts’, will help to reduce the UK’s budget deficit and remove the need to higher NICs in 2011.

Although the planned 1% rise in NICs would generate around £5.1bn, this tax increase would be the most detrimental to business, the BCC said.

‘Raising a damaging tax on business, like NICs, will be counter-productive,’ warned the BCC’s Director General, David Frost. ‘It will mean fewer jobs and less tax revenue in the long-term. While businesses fully understand the need to bring down the UK’s deficit, they are clearly saying that using VAT would be a less damaging way to achieve this.’

A recent BCC poll found that 41% of firms questioned want the next administration to make tackling the public deficit a priority. Meanwhile, 22% of companies believe that the Government should focus on slashing the red tape burden following the General Election.

‘The message from business is clear,’ said Frost. ‘After an election, we have to get a serious grip on the country’s public finances and escalating debt. Cutting the deficit means making tough decisions on spending, like freezing the public sector wage bill and reforming public sector pensions.’