Scrapping zero VAT rate will help poor families, says IFS

The zero and reduced rates of VAT should be scrapped to improve the living standards of poorer families and help cut £11bn of other taxes, according to a new report.

The Mirrlees Review's report for the Institute for Fiscal Studies argues that abolishing the zero and reduced VAT rates will cut compliance and administration costs for government and business and interfere less with people's spending decisions.

'Scrapping the existing zero and reduced rates of VAT – perfectly consistent with EU rules – would raise around £23bn,' said an IFS statement. 'If £12bn of this extra revenue were spent increasing means-tested benefit and tax credit rates by 15%, this would leave the poorest three-tenths of the population better off on average while still raising £11bn to cut other taxes or to spend in other ways.'

The report said that such a move would have only a modest and temporary effect on inflation, increasing the non-housing retail price index by around 0.35%.

'The only barrier is the reluctance of politicians to be seen to propose taxing 'essential' items,' stated the IFS.

Further reading:

Huge rise in reliance on VAT by instalments