20/05/2009 - Calls to raise VAT to fill deficit
A university professor has said the Government needs to increase VAT to 20% to plug its budget deficit.
According to Clemens Fuest, of the Said Business School at the University of Oxford, increasing VAT from 17.5% to 20% in 2011 would raise sizeable returns without damaging the economy.
He said the increase would raise an additional £12.5 billion a year, but by increasing it even further to 22% an extra £22.5 billion could be raised annually.
Prof Fuest argued that increasing VAT a year after the phasing out of the current 15% rate, which was introduced as a measure to boost spending, would make a significant contribution to bringing down the budget deficit.
He believes that a short term VAT rate of 20% from 2011 would help to stabilise demand as households would be likely to bring forward large purchases before the increase kicked in.
According to the professor, the VAT hike would be less harmful for growth than rises in income tax, National Insurance or corporation tax.
Copyright © Press Association 2009
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