20% VAT ‘looming’ as ministers face mounting debt crisis

Last updated at 8:02 AM on 22nd January 2010

Shoppers face paying 20 per cent VAT as the Government struggles to pay its debts
A hike in VAT is ‘inevitable’ after the election as the government grapples with a mounting debt crisis, experts warned yesterday. The Treasury will have to lift the tax from 17.5 per cent to 20 per cent to raise an extra £12 billion of revenue a year, according to analysts at consultancy Oxford Economics. The next Government may also have to delay the state retirement age to 68 in order to cope with the biggest debt crisis since the Second World War, the report said. The warning came as official figures revealed the UK government has borrowed almost £330 million a day so far in the current financial year - the most on record. Figures from the International Monetary Fund show the UK has seen the sharpest increase in its debt burden of any Group of Seven nation since the start of the financial crisis. Neil Blake of Oxford Economics said: ‘There appears to be a political consensus that spending cuts should form the bulk of the tightening but we can’t see how the necessary adjustments can be made without further tax rises too. ‘An increase in VAT to 20 per cent after the election and a rise in the state retirement age at some stage would appear inevitable.’
Chancellor Alistair Darling has pledged to halve the deficit in four years under a new Fiscal Responsibility Bill, but City analysts say he will have to do far more to restore investor faith in the UK public finances. This week Bank of England Governor Mervyn King renewed his calls for more drastic steps to tackle the UK’s debt mountain, which has doubled to £870 billion in the past fives years alone. Last year’s temporary reduction in VAT from 17.5 per cent to 15 per cent has now been reversed, which should bolster revenues in the coming months. But both Labour and the Tories are believed to be weighing up further increases in VAT to prop up state revenues. Luxembourg and Spain are the only European countries with lower VAT rates than Britain, so there is room for further hikes, according to Oxford Economics. John Hawksworth, an economist at accountants PricewaterhouseCoopers, said: ‘Some sort of VAT rise is quite likely. Not necessarily immediately, but perhaps from 2011. But there would have to be a package of measures, not just one.’ Oxford Economics’s analysis showed that the Treasury will have to raise an additional £10 billion just to meet the terms of its Fiscal Responsibility Bill. Few experts doubt that it will have to go much further beyond that. The Treasury borrowed £15.7 billion in December alone, a record for the month. While that was lower than many City experts fear, it means the Treasury has added £120 billion to its debt mountain so far in the fiscal year that began in April. Conservative Treasury spokesman Philip Hammond said: ‘This is a double dose of appalling economic news. We have the worst December borrowing figures on record and IMF figures showing that, since the financial crisis began, Britain’s public finances have deteriorated faster than those of any other G7 country.‘No wonder the Governor of the Bank of England, credit rating agencies and international investors don’t think Gordon Brown has a credible plan to deal with our record budget deficit.’

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The sooner this incompetent government realises that, like the small private debtor, it is a useless action to brush debt under the carpet it will have learnt another lesson. In the past 13 years labour has regularly talked about learning lessons whilst driving the great out of Great Britain.
Labour has, once again, proven it is not fit to govern.
Brown should accept that labour has destroyed Great Britain’s standing in the world and call the general election in order that another party can apply remedial action that is urgently required.
- Athol, Norwich, Great Britain, 22/1/2010 07:42

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As I told a gullible Labour voter back in early 1997, if you want a Labour government you’ll have to pay for it. All the extra taxes, the cash cow fines, the cuts where money is genuinely needed and now an increase in VAT, and the country is still not doing well because every Labour government has always wasted billions and billions.
- Jim Diamond, Cambridge UK, 22/1/2010 06:51

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Why does it have to be raised AFTER the election? If it is important and if Labour need to raise it, they must announce it in their coming budget, and then do it.
However, we all know that if they win the election Labour will raise it, but if the Tories win and raise it, Labour will instantly blame the Tories with claims of “it hurts the poor” etc.
If it needs to be raised it must be done by this Labour Government before the election.
- L. G., Berkshire, 22/1/2010 06:37

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Another bashing for those living in the UK who’ve saved and invested for their retirement then.
- CliffH, Pattaya, Thailand, 22/1/2010 05:37

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