Economists say VAT will rise

By staff

The new government will have to increase VAT, leading economists have said.

All but four of 28 independent economists who advise the Treasury told the BBC, who conducted the survey, they expected an increase in the sales tax during the next parliament.

Most said the rate would reach 20% by the end of 2011, providing the Treasury with an estimated £11.5 billion a year.

Last year the tax was cut to 15% from its current rate of 17.5% as a temporary measure to encourage consumer spending during the recession.

The new government has pledged to cut the country’s deficit in the next year, with £6 billion cuts expected to be made.

An emergency Budget is to be made within 50 days, and any rise in VAT will be announced then.

Economist Azad Zangana, from Schroders, who is predicting a rise in VAT to 19%, told the BBC: “While earlier cuts in public spending are inevitably going to dampen economic growth, the UK recovery appears to be gathering pace,” he said.

He added that £6 billion in public spending cuts was only “a drop in the ocean” compared to what would be required to tackle the current £166 billion deficit.

During the election campaign George Osborne insisted he would be able to cut the deficit and taxes without having to raise VAT.

The Liberal Democrats ran a poster campaign before the election accusing the Conservatives of having secret plans to raise the tax in government.

Vince Cable, the new business secretary, wrote last year that a sudden hike in VAT would “stall the recovery”.