VAT brings in £1.6 trillion in 40 years as its complexity grows

Ben Southwood
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INTRODUCED on April Fool’s Day 1973, the Value Added Tax (VAT) turned 40 yesterday, surviving scandals to deliver £1.6 trillion to the exchequer.

But the straightforward and flat tax introduced at 10 per cent 40 years ago bears little resemble to the modern regime, pockmarked with exemptions and reductions.

“As a revenue generator, it is attractive to governments because it is relatively easy and cheap to collect,” said Deloitte’s Daniel Lyons, pointing to the £1.639 trillion the indirect tax has brought the exchequer in its 40 years of operation. In the last tax year, VAT brought in 21 per cent of all government revenues.

But he warned: “Its complexities have been demonstrated by some high profile food related VAT cases from Jaffa Cakes to Ribena.”

This chimes with the Institute for Fiscal Studies’ Mirrlees Review, which described the current complex system – where, for example, biscuits face VAT but cakes do not – as “fundamentally unfair and wasteful”. It called for an end to exemptions to flatten out the rate, which reached 20 per cent under George Osborne.