Emergency Budget: VAT rises to 20%

Tuesday, 22 June 2010 5:05 PM

By Tobias Benedetto

VAT is to rise from 17.5% to 20%, as was widely expected.

The chancellor George Osborne claimed the "unavoidable" hike will generate £13 billion towards clearing the deficit as he delivered his emergency Budget.

The tax is considered regressive because it impacts on purchases rather than income, and therefore tends to hit the poor harder than it does the rich.

Right-wing group the Taxpayers' Alliance found itself agreeing, perhaps for the first time in its history, with the TUC, which also opposes the move.

In a campaign video posted across the internet, the Taxpayers' Alliance said: "VAT hits the poor twice as hard as the rich. David Cameron and Nick Clegg have no mandate to hike VAT."

Brendan Barber, TUC general secretary, said: "VAT increases don't just hit the poor more than the rich, they also hit small firms, threaten retail jobs and by boosting inflation could also lead to higher interest rates."

Retailers and economists have voiced concerns over the possibility the move could derail the recovery. The British Retail Consortium said the increase will cut consumer spending by £3.6 billion and cost 163,000 jobs.

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• economic policy
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• economy
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• economy and finance