x
By using this website, you agree to our use of cookies to enhance your experience.
We have 1 guests online 
Sign up

VAT rise to 20pc a near certainty

Thursday 18th February 2010

By Mike Jones

Speculation that the rate of VAT will increase to 20% is made into a near certainty if you examine current trends and the lessons of history. This rise in VAT makes buying a used rather than new home the better option. You can check propertywide.co.uk for listings

That is the verdict of LexisNexis tax expert, Paul Stainforth. Research into European VAT rates and past VAT rises support the view.

Stainforth said: "Given the size of the deficit, and the trend to increase the rate of VAT in EU Member States, it could be a big surprise to the markets if an increase in the UK’s standard rate of VAT is not announced in the first Budget after the election, regardless of which party gets into power. An increase by 2.5% to 20% would bring the UK’s rate more closely in line with the EU average of around 20%."

The three drivers for an imminent change are:

1 History suggests that rises in VAT tend to be made at the start of a new Parliament, regardless of whether there is a change of Government.

Three of the last four major rises in VAT were made at the start of a new Parliament. VAT increased from 12.5 to 15% by June 1979 Budget - this followed the May 1979 election won by the Conservatives Extension of 25% rate to "luxuries" in first full Budget of new Parliament, in April 1975 following the October 1974 election won by Labour. Introduction of 25% VAT rate for petrol in third 1974 Budget - this followed October 1974 election won by Labour. The main exception was the increase in 1991 from 15% to 17.5% - this was made towards the end of a Conservative Parliament as the price paid for removing the poll tax. And we needn’t necessarily expect too much warning for any increase – one of the most recent UK precedents, the 12 June 1979 Budget, saw VAT increased from 12.5% to 15% six days later.

2 A rise in the UK’s standard rate (17.5%) would bring us more in line with the average EU standard rate (of 20%).

VAT is an EU tax so any discussion of the appropriate rate should take into account the European context. Of all the EU countries, only Luxembourg and Cyprus (with standard rates of 15%) and Spain (16%) currently have lower rates of VAT than the UK - and one of those countries (Spain) has already pledged to increase its rate of VAT (to 18%, from July 2011). Even Germany, which traditionally has low rates of VAT, now has a higher standard rate of VAT (19%) than the UK.

3 A rise would be consistent with the upward trend in other EU Member States.

Since January 2008, we have seen rises in the rate of VAT in EU Member states:
1% (Czech Republic - current rate 20%)
2% (Estonia - current rate 20%)
3% (Latvia and Lithuania - both with current rates of 21%)
5% (Hungary - current rate of 25%)
Germany introduced a 3% rise in VAT from 16% to 19% in 2007.
Finland and Spain last year promised VAT rises in 2011 of 1% and 2% respectively.

While the UK made a temporary 2.5% cut in 2009, only one EU Member State actually reduced the rate of VAT over the last two years - this was Portugal (which reduced its rate by 1% to 20% in 2008 in an overtly populist move prior to elections).

Have your say on this story using the comment section below





blog comments powered by Disqus
View Comments

(8) Comments | Report Abuse

Added by Anitra on 2011-07-03 23:50:51

Ppl like you get all the birnas. I just get to say thanks for he answer.
Added by Anne Palmer on 2011-01-04 01:46:10

It has taken almost 12 months to confirm your prediction was correct. So, me lad, what is next?
Added by BARRY on 2010-04-12 12:31:14

One issue not considered is the fact that as Black Taxi cab drivers are not registered for VAT and thus cannot recover any VAT output

MANY WILL NOT BE ABEW TO COPE WITH ANY INCREASE AND THUS GO OUT OF BUSINESS !

THIS IS ONE OF THE LAWS OF UNINTENDED CONSEQUENCES, WHERE BORIS JOHNSON ONE MINUTES ARRANGES FOR GURANTEED NIGHT FARES FROM CENTRAL LONDON, BUT WAS NOT TOLD ABOUT THIS INCREASE
Added by BARRY on 2010-04-12 12:22:05

Unfortunatly, your correspondent has incorectly staed Spain's position here!

First, SPAIN WILL BE INCREASING VAT AT THE TOP LEVEL FROM IST JULY 2010, NOT 2011!

Second,the current reduced rate of 7% for hotels, restaurant services or admision to cultural events wil rise on the above date to 8%.

Third,the current lowest rate on so called " basic necessities " such as bread fruit and vegetables , charged at 4% is not due to change

Added by charlie 2 cents on 2010-02-19 04:09:20

Airedale1 - where do you get off rising taxes to solve every problem, if you go down that road we will all be paying 100% tax.
A government should be familiar with something called a BUDGET and be able to spend money wisely. We have been wasting money too much on meaningless things. We need to restructure the entire government. The way the country is run needs to be changed. Drastically. It's too easy to say put up taxes, every time a government suggests it's time to put up taxes it is a sure sign they are not doing the job properly. Stop the waste. Not the wages. Not the hospitals. Not the Health care. Not the Dentists. Not the pensions. Not the jobs. THE WASTE - THE Expenses Scandal, the inquiries , the fact finding trips, the unheard of meetings for gravy-train councils.
Pay the Troops not the politicians.
Get me some valium....
Added by peter scott on 2010-02-19 12:22:23

Why don't this goverment just take all our money off our employers and just give us back some pocket money instead.
Added by Airedale1 on 2010-02-18 07:49:03

If it isn't put on VAT - where will it come from?

Previous conservative governments have raised VAT, slapped it on fast food and also battered the energy supplies with it.

No matter who is in power - this defecit will have to be brought into check.
Added by charlie 2 cents on 2010-02-18 02:03:19

Any gov that increased the vat would face being thrown out instantly. There would be a revolution on a scale never before seen in this country. Economically it would be suicide for our already frail economy. Notice Hungary has a VAT rate of 25% look at the state of them.
SAY NO! To VAT
Remember it is a tax on almost everything you buy and didn't you already pax tax and N.I. on your wages?
Feedback:
If you have any questions or suggestions about this article or our news section, please don't hesitate to contact us.

Editorial Contact Details - Conor Shilling
conor.shilling@angelsmedia.co.uk
0845 672 6000
Related News Stories
Most Read News Stories