LONDON, (MNI) – A study commissioned by the British Retail
Consortium/KPMG claims that hiking the UK’s value added tax rate by 2.5
percentage points would have a heavy impact on consumer demand and
employment.

The BRC study says if VAT is hiked to 20% from its current 17.5%
this would cost 30,000 in the jobs in the first year rising to 163,000
by 2014/15. The new UK Conservative/Liberal Democrat coalition is
holding an emergency budget on June 22. While here has been widespread
speculation a VAT hike will be announced, there are doubts over when it
will come into effect and whether it will be phased in.

The BRC commissioned the Centre for Economic and Business Research
to carry out the study for it. The CEBR figures say the VAT hike would
initially bring in an extra stg11.3 billion but this would decline to
stg8.4 billion by 2014/15 with the VAT hike lowering employment levels,
impacting demand and forcing higher welfare payments than would
otherwise be the case.

While a raft of business groups opposed the previous government’s
planned hike in national insurance contributions, the BRC appears to be
on its own in opposing any hike in VAT.

A BRC spokesperson said he was not aware of any other business
groups supporting its approach of opposing a VAT hike outright.

A spokesperson for the British Chambers of Commerce said the BCC
has proposed replacing the NIC rise with a 1% rise in VAT. The BCC
official said there were legitimate concerns about a larger VAT hike
than this, with the BCC arguing the bulk of deficit reduction should
come from public spending cuts.

While politically there is always a heated debate over the choice
between direct and indirect taxes, macro-economic models tend not to
show, at least in the near term, vast differences between them in terms
of impact on the real economy.

On the CEBR estimate a 2.5% VAT hike would bring in around 0.8% of
GDP in extra revenues, but it forecasts by 2014/15 it would knock some
0.5 percentage point off consumption.

BRC officials have also warned that if the VAT hike is announced in
the June budget, it could force sales growth down this year to around
flat.

–London newsroom: 4420 7862 7491; email: drobinson@marketnews.com

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