Tax centre calls for VAT hike to fill deficit

VAT pack: Tax centre advises chancellor to hike VAT

A steep increase in VAT is the best way to tackle the Budget deficit,
according to the Oxford University Business School, but only in 2012.

In a paper addressed to the pre Budget report the centre said it was too
early to slash government spending or instigate major increases in taxation.

“The economy is currently too fragile to implement spending cuts or tax rises
immediately. The costs of harming any economic recovery exceed those of delaying
a reduction of the deficit, especially if there is a credible strategy for
reducing the deficit over the longer term.”

The centre described a lift in the rate of VAT as a “credible strategy” for
reducing the deficit. “At the same time such an announcement would create an
incentive for consumers to bring forward spending before the tax rise takes
effect, thus supporting the economic recovery,” its report said.

The centre casts doubt on government forecasts for the the economy returning
to 3.25% growth and said that “under less optimistic and probably more realistic
scenarios, the targets will be met only by cutting the real level of spending,
or by raising taxes. The centres estimates tax rises of cuts in spending of
around 3% of GDP are needed by 2012.

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