Will we see another VAT rise this year?
Filed under: Tax
The story of pasty tax has been well documented in the media as have the new rules, which state that we must pay more for a pasty that lukewarm and sitting on a hot plate than if it's fresh out of the oven or just cooling (no, I didn't get it either).
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We've already endured a 20% rate of VAT since last January and Chancellor George Osborne made it clear before he increased it that it wasn't going to be temporary as it brings in an extra £13 billion each year.
The pasty tax was due to bump that figure up by £40 million a year, not an insignificant amount from Cornish pasties. And £40 million is not to be sniffed at by a government looking a monstrous deficit.
When it comes to VAT, we have to remember that Osborne never said that it wouldn't increase past 20% and George Bull, senior tax partner at Baker Tilly thinks that we will all have to fork out for the U-turn over takeaway food.
'With no upper limit on the standard rate of VAT, the autumn Budget may announce an increase to the current rate of 20%,' he said.
The International Monetary Fund has said Britain should cut VAT temporarily if the our recovery stalls but the coalition is not one for putting money into people's hands – let's remember that we are currently taxing our way out of recession, not spending out of it.
A 22.5% VAT rate is not inconceivable but there is a concern that in trying to recoup the money lost through the U-turn prices across the board rise, inflation is pushed up again just when we thought it had peaked, and families are once again struggling to cover their day-to-day costs.
At the moment we are trying to walk a thin line between cutting the deficit and making sure families aren't stretched even further. Only one thing is certain, we won't be enjoying a cut in the rate of VAT anytime soon.