VAT rate could be lowered to promote consumer spending

A recent report that showed VAT receipts have surged by 79 per cent in the last eight years has prompted speculation that the Government might lower the rate, as officials fear that Brexit could hit consumer spending due to price rises and increased economic uncertainty.

VAT receipts have jumped spectacularly since 2009/10 when the tax take was £70 billion, compared with £126 million in 2017/18. This has taken the tax to more than a fifth of the total tax take.

This has prompted one of the report’s authors to suggest that contingency plans might be put in place to help counter the potential fall in VAT receipts once the UK leaves the European Union.

He added that VAT has become a crucial component of HM Revenue & Customs’ (HMRC) tax take and the Government is likely to be keen to protect this important revenue source.

Last year, HMRC’s total tax take increased to £594 billion, a 30-year high, which equates to 33 per cent of gross domestic product (GDP). It positions the UK at 20th out of 36 OECD (Organisation for Economic Development and Cooperation) countries for the highest tax burden. Of this list, France is top at 46 per cent, but Ireland is considerably lower at 23 per cent.

The rate of VAT rose from 17.5 per cent to 20 per cent in 2011, and before the hike, it represented only 18 per cent of HMRC’s total tax take. Meanwhile, last year, Income Tax accounted for 21 per cent of the total tax take at £180 billion, and Corporation Tax accounted for £54 billion.

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