RAISING VAT to 20 per cent would cost thousands of jobs and pull billions of pounds of consumer spending out of the economy, the British Retail Consortium warned today.
Cautioning chancellor George Osborne there is no “silver bullet” to reduce Britain’s budget deficit without harming the recovery, the BRC said hiking VAT from its current level of 17.5 per cent would result in 163,000 fewer jobs over four years. Employers would scramble to repair their battered margins by shrinking their workforces while high street spending would fall £3.6bn, the industry body said.
A study for the BRC by the Centre for Economics and Business Research found a VAT rate of 20 per cent would bring down the national deficit by £11.3bn in the first year but there would be 30,000 fewer jobs in the UK.
The CEBR also predicted a one per cent rise in employees’ National Insurance contributions and a 0.5 per cent rise in employers’ contributions would lead to a loss of 25,000 jobs in the first year, mounting up to 109,000 after four years.
BRC director general Stephen Robertson said: “For the first time we have clear, independent evidence showing VAT and NI increases will have a deep and long-lasting impact on jobs and growth. The budget deficit is serious. It has to be tackled but proposals must be judged against the implications for jobs and growth revealed by this new information.”
Robertson recommended cutting public spending rather than raising taxes as the main tool for reducing public debt. “Removing some of the previously-planned NI increase and signals the chancellor will look for an 80:20 split between public spending cuts and tax rises are a welcome start,” he added.