While there are fears that retailers will try to use the VAT increase to mask putting prices up to cover such things as increased energy and commodity prices, George Osborne defends criticism that the increase is regressive saying that it is a 'tough but necessary step towards Britain's economic recovery'.

Ed Miliband has come out all guns blazing charging the chancellor with 'treating the British people like fools' over the rise.


The Chancellor is of course sticking to his guns that "If you don't want to raise VAT, you have got to do something else" and any increase in "Income tax and National Insurance would have a more damaging impact on poorer people in our society".

But the Labour leader said that "Everybody knows it's poor and middle-income families that will be hit hardest" and also that David Cameron should say sorry to the British people for misleading them over the issue. And yesterday Alan Johnson the shadow chancellor called the VAT increase a broken election promise by the Tories.

Now the RMT transport union general secretary Bob Crowe has weighed in saying that this VAT increase would be factored into pay negotiations as unions 'fight to defend out members' standard of living'.

The VAT rise is intended to raise an extra £13 billion a year for the treasury, but that will be based on peoples' spending habits.

Labour had aimed their tax rises at National Insurance which, although seen as a tax on jobs, may possibly have been a more stable option with regard to treasury income.

An increase of tax to 20% from 17.5% actually results in a real overall item price rise of 2.1%. But according to the business consultancy KPMG Performance & Technology many retailers plan to increase their prices well beyond this. So, as VAT is a percentage charge the treasury will benefit all the more and consumers will pay even more.

Vat is also a tax on tax where fuel is concerned as it is also applied to fuel duty which increased by 0.76p on the 1st January this year. This alone will cost the freight industry some £95 million a year.

What the VAT rise may have done is help paint a rosier picture of the end of the year's economy as people snapped up stuff before the rises take place. If so then spending will be well down in January. But even before that possibility the Centre for Retail Research says that they expect sales to drop by 3.1% (£2,2 billion) just because of the rise.

At the end of the day any government coming in would have been forced to raise taxes. And wherever they are applied tax rises have to be paid for. And that usually means the ordinary person in the street picking up the tab.

Comment Here!

comments