UK government announces cut in VAT

November 24, 2008 The UK Government has announced that it is cutting the rate of Value Added Tax (VAT) by 2.5 percentage points, to 15%, in a move to get consumers spending again.

This move, along other tax cuts, is going to require the government to increase borrowing to record levels, according to experts cited by BBC News. Gordon Brown, the UK Prime Minister, has stated, "I don't see this as a gamble, I see this as necessary, responsible action, that any sensible government would want to take."

"Those people who say do nothing now, would leave people, as in the 1980s and 1990s, without hope that their mortgage problems could be sorted out, or their jobs problems could be sorted out," he continued in a discussion on BBC television programme "The Politics Show". "It would be lacking in compassion, as well as irresponsible, in my view."

David Cameron, the leader of the opposition, has expressed his concern over the move. "I think people are going to be shocked tomorrow [Today] when they see the extent of government borrowing," he said yesterday, before the move was official. "Maybe £80bn this year, before the recession's even properly started, and possibly over £100bn next year. And next year that is over £4,000 extra for every family in the country."

"So I do have a real concern about a government going on a borrowing binge that even they are now admitting is going to lead to much higher taxes later."

In his statement announcing the move, Alistair Darling, the Chancellor of the Exchequer, has admitted that the national debt will go up from 2.8% to 4.4% over the next year, although he stated that these changes were necessary to avoid a recession.

The move, which will come into effect next Monday, will last until the end of next year, and Darling stated that it will cost the government £12.5 billion. This was announced as part of the 2008 pre-budget report.

Vince Cable, the leader of the Liberal Democrats, also commented on the tax cut. "A big tax cut's desirable, that's certainly the case. And a VAT cut would act very quickly, which is positive," he stated. "But we prefer a different approach which is more targeted on people who really need it. And we believe that people on low incomes, low wages should get an income tax cut - lifting thresholds or reducing the rate. And that's a much better way of concentrating resources where it needs it."

15% percent is the lowest rate of VAT permitted by the European Union.