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2 June 2010 VAT hike could have an ‘adverse impact on the economy’

Raising VAT to 20% would have a ‘deep and long-lasting’ impact on the economy, the British Retail Consortium (BRC) has warned.

With speculation rife that a VAT rise could be in the pipeline, the BRC has published independent analysis on the possible effects. It warns that such an increase would cost 163,000 jobs over four years and reduce consumer spending by around £3.6 billion over the same period.

While a VAT rise would reduce Britain’s deficit by some £11.3bn in the first year, the retail body claims that it would also lead to lower demand on the high street as prices rise and retailers’ margins are hit.

Ultimately this could result in companies making job cuts or freezing recruitment, the BRC stated. It predicts that higher VAT could lead to 30,000 fewer jobs during the first year, before climbing to 163,000 within four years of a rise.

The organisation is now calling on the new coalition Government to prioritise spending cuts over tax rises, although it conceded that there was no ‘silver bullet’ that would reduce the deficit without having a significant impact on the economy.

BRC Director General Stephen Robertson said: ‘For the first time we have clear, independent evidence showing VAT and NI increases will have a deep and long-lasting impact on jobs and growth.

‘The budget deficit is serious. It has to be tackled but proposals must be judged against the implications for jobs and growth.’

He added: ‘Business growth will get the country out of the hole it’s in, led by retail. The Government must now deliver a route to stability that supports companies and customers by avoiding damaging tax rises.’

However, a Government spokesperson said: ‘The Chancellor’s position has not changed. There are no plans to raise VAT.’