In today’s emergency budget, Chancellor George Osborne said: “The years of debt and spending make this unavoidable.”
The House of Commons erupted on hearing the news and the Speaker had to call order, saying members should show “a little more restraint”.
Osborne went on to say: “This single tax measure will by the end of this parliament generate over £13 billion a year of extra revenues. That is £13 billion we don't have to find from extra spending cuts or income tax rises.”
Everyday essentials such as food and children's clothing, as well as other zero-rated items like newspapers and printed books, will remain exempt from VAT over the course of this parliament.
In line with the increase in the main rate of VAT, the higher rate of insurance premium will also rise from 17.5% to 20%, while the standard rate will increase from 5% to 6%.
Paul Hunt, managing director of Phoebus Software said: “The 2.5% increase in VAT is good news for two reasons. First, to an extent, VAT is a tax of choice. Second, after the initial increase in prices, it may help to control inflation on certain goods as people will buy less of them.”
