An increase in the standard VAT rate from 17.5% to 20% would raise an extra £13 billion a year for the public purse. And levying VAT on food – which is currently exempt – albeit at a lower rate of 5%, would bring in an additional £3.5 billion a year.
As reported in the Times last week, regardless of which party wins the next general election, an increase in the standard VAT rate to 20% now seems inevitable.
While levying VAT on food remains a politically sensitive topic, domestic heating fuel and children’s car seats are already subject to the reduced 5% rate, so it should not be ruled out.
The scale of the problem
Figures from the Office for National Statistics show that public sector net debt reached £870 billion at the end of December 2009. And net debt, expressed as a percentage of gross domestic product, was 61.7%.
(NB. This compares with net public sector debt of £733.9 billion – or 51.7% of gross domestic product – in December 2008.)
The net borrowing requirement for 2009/2010 is forecast to be £178 billion so unless the UK experiences some kind of economic miracle public sector debt will rise again this year. Obviously this level of debt is unsustainable.
Levels of VAT / sales tax overseas
Across Europe VAT rates vary from 15% to 25% – the European average is somewhere around 20%.
In the USA, however, where sales tax is levied at the state level, tax rates range from nil (in Montana, New Hampshire, and Oregon) to 8.25% (California).
Why the difference?
European countries tend to spend more on public services – such as education, healthcare, and social services – than other nations. Hence they need to raise more revenue to pay for them through higher taxes.
** VAT Rates – Additional Information & Advice **
Alternatively, you may prefer to speak with a tax lawyer. You can find a solicitor specialising in tax for free via solicitor matching services, which can also help you to understand the best course of action for your situation and whether you are ready to hire a solicitor.
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