Budget 09: Darling sneaks in VAT clause

Chancellor Alistair Darling used the Budget to lay groundwork for legislation allowing the standard rate of VAT to be temporarily altered for periods of less than 12 months.

The change prompted speculation he might make large rate rises in future.

Lorraine Parkin, partner of tax services – VAT at Grant Thornton, said the move would enable the government to make significant rises after the next general election when it would be less damaging to Labour’s election prospects.

‘If they went all the way to the maximum of 25% this would net around £16bn – money that would certainly help Mr Darling pursue his policy of continued investment in the economy,’ she said.

Treasury figures reveal the Exchequer expects to receive VAT estimated at £64bn in 2009/10. Parkin said, if tax revenues were to remain static in 2010/11, a six-month hike in the VAT rate to 20% post-election, would net the Treasury around £5bn.

A Treasury spokesman would not comment on future tax rises, but said ‘all taxes are kept under review at all times’.

The standard rate of tax was reduced in last year's pre Budget report cut from 17.5% to 15%. The cut will be effective for only 12 months and on current policy will end on 31 December this year.

The chancellor reveale he expected the Uk economy to return to growth by the end of this year though overall it will shrink by 3.5% in 2009. Darling predicted GDP growth of 1.25% in 2010.

Comment:

Budget 09: It's a confidence game...but the chancellor didn't show

Thanks, Darling, for the British Sarbox

Alice in Wonderland estimates